The Securities and Exchange Commission yesterday accused the president of Circuit City Stores Inc., Richard L. Sharp, of using inside information to profit illegally from the purchase of stock in his rapidly growing company.
In a civil suit filed in U.S. District Court in Richmond, the SEC alleged that Sharp bought 5,000 shares of Circuit City stock on the morning of June 21, 1983, shortly before the company announced that its sales jumped 35 percent and its earnings surged 237 percent for the quarter ended May 31, 1983.
Sharp denied any wrongdoing.
Sharp, the SEC charged, "received and read" the information about the financial results a day earlier in a briefing book prepared for the board of directors. Two board meetings and the annual stockholders meeting were held on June 21. Sharp was then the firm's executive vice president and a nominee for the board of directors.
Sharp bought his stock before the public announcement of the major gains in company sales and earnings, the SEC alleged.
"The order for the stock was entered by the defendant's securities broker before trading opened, and was filled by the specialist on the American Stock Exchange by 10:28 a.m. The wire services did not report the financial information released by the company until 11:17 a.m.," the SEC said.
Sharp paid $35.50 for 500 shares and $35.75 for 4,500 shares, for a total purchase of $179,375, the SEC said. During the next few days, the price of the stock rose as high as $39.50 before starting to decline.
The SEC asked the court to require Sharp to "disgorge . . . all illegally obtained profits" -- amounting, the SEC said, to $18,875 plus interest. The sum represents the difference between what Sharp paid for the stock and the $39.50 price reached after he bought it.
Sharp, insisting that he had committed no impropriety, said the purchase occurred in the midst of a series of stock purchases and that he still holds the approximately 100,000 shares he acquired at different times.
The purchase of the 5,000 shares, he said, took place "at a time when all material information relating to the company had been publicly released."
He also contended, "There was no significant movement in the price of the stock after this trade and within a week, the stock was trading at a price that was lower than the purchase price."
Attorney Harvey L. Pitt of Washington, who is representing Sharp, said his client had been offered an opportunity by the SEC to settle the case but had rejected the offer. "We don't believe Mr. Sharp did anything wrong," said Pitt. In buying the stock, Pitt added, Sharp acted in a way "to ensure he would comply with the law."
The SEC said that Sharp's transaction was reported to them by the American Stock Exchange, which picked it up on its stock surveillance system. At the time of the trades in question, Circuit City was known as Wards Co. Inc. and was trading on the Amex. It changed its name to Circuit City about a year ago and now trades on the New York Stock Exchange.
Sharp, 38, joined Wards Co. in November 1982 as executive vice president, became a director on June 21, 1983, and president on June 22, 1984. He founded Applied Systems Corp. in Washington in 1975 and served as its president. The firm was acquired in 1981 by Timeshare Inc., and Sharp served as an officer of that company until going to Circuit City.
Propelled by soaring consumer interest in videocassette recorders, Circuit City sales have been rapidly rising, moving from $246 million in 1983 to $356 million in 1984 to $519 million in 1985. (Its fiscal year ends in February.)