BALTIMORE, OCT. 17 -- The president and a former chief financial officer of Insituform East Inc. of Landover were indicted today on criminal fraud and insider trading charges.
The 14-count indictment, culminating a four-year securities investigation of the publicly traded pipe repair company, was filed against Arthur G. Lang III, 41, of Mitchellville, president of Insituform, and Thomas C. Trexler, 41, of Kensington, who until 1988 was executive vice president and chief financial officer of the company.
The two men were accused of artificially raising the stock price of Insituform in the 1986 fiscal year, then selling their personal stock holdings for $3.7 million after manipulating company records to make it appear that revenue had increased and expenses decreased.
The two men sold their stock, the indictment said, after falsely creating a positive financial picture and concealing a $338,921 loss in April and an unspecified "significant loss" for the entire fourth quarter.
Insituform, a 150-employee firm that repairs underground sewer systems without excavation by lining old pipes with special tubing, was the 69th-largest public company in the Washington area last year, reporting $21.2 million in revenue last year. It is a licensee of Insituform North America, whose parent company is Insituform Group Ltd., a British holding company.
If convicted, Trexler faces up to 70 years in prison and $3.5 million in fines.
Lang faces up to 60 years in prison and $3 million in fines.
The two men could not be reached for comment. Lang has taken an administrative leave, according to a company press release.
Lang's attorney, Richard Kraut, said, "We believe the charges are groundless. We believe Mr. Lang is innocent."
Stephen H. Sachs, attorney for Trexler, said, "He's not guilty, and he's going to plead not guilty."
Sachs characterized the case as a "four-year-old accounting squabble with the Securities and Exchange Commission."
Trexler resigned from Insituform in 1988 after he told the company that he had made a costly investment error in 1986 but had hidden the mistake by depositing $100,000 of his own money in the company's account.
According to the indictment, Trexler and Lang made false accounting entries in the company books that, among other things, increased reported income for the third quarter of 1986 by more than $190,000 and decreased expenses by more than $75,000.
Trexler and Lang also ordered production records for March and April 1986 destroyed and fictitious ones created, the indictment said.
After filing reports with the SEC giving a false rosy picture of the company, the indictment charges, the two men sold their stock, harming other stockholders who did not know the true condition of the company.
According to prosecutors, Lang sold 109,419 shares of Insituform stock for $2.1 million and Trexler 70,205 shares for $1.6 million. The company losses that had been concealed earlier in the year by Lang and Trexler were reported as fourth-quarter losses after the two men had sold their stock, the indictment said.
The price of Insituform stock "dropped dramatically" thereafter, prosecutors said, falling from a high of $28.75 in the summer of 1986 to $10.87 1/2 by the end of September when the fourth-quarter loss was announced. Insituform stock is now trading on the over-the-counter market at slightly more than $1 a share.
U.S. Attorney Breckinridge L. Willcox, Maryland's chief federal prosecutor, said the SEC is continuing a civil investigation of the two men.