A federal judge yesterday permanently enjoined former budget director Bert Lance and 10 other defendants from violating federal securities laws in connection with the purchase of stock in Financial General Bank-shares Inc., a Washington bank holding company.
The injunction was sought by the Securities and Exchange Commission, which filed suit against the 11 on Friday. In addition to the injunction, U.S. District Court Judge Oliver Gasch ordered certain financial remedies requested by the SEC.
All 11 defendants consented to the judge's order without admitting or denying the allegations in the SEC suit.
G. William Middendorf, the former Navy secretary and president of Financial General, was a defendant.
In trying to block the Lance group from taking over the company, Middendorf allegedly failed to make certain disclosures of his financial dealings in the company's stock, as required by law.
Lance and the other defendants allegedly bought 28 percent of the holding company. The SEC said foreign buyers were used to avoid certain disclosures required by law.
The SEC said the Lance group violated Section 13d of the federal securities law by failing to notify the company, the SEC and the American Stock Exchange that they had acquired more than 5 percent of the stock. Such a report should be filed within 10 days after the stock is acquired.
The other defendants are: Jackson T. Stephens, a Little Rock investment banker, and the company he heads, Stephens Inc., Eugene Metzger, a Washington attorney and Financial General stockholder; Sheikh Kamal Adham, former head of Saudi Arabia's intelligence agency; Sheikh Sultan Bin Zaid al Nahyan, crown prince of Abu Dhabi; Abdullah Darwish, financial adviser to the royal family of Abu Dhabi, who represented the crown prince's 4-year-old brother, in whose name Financial General stock also was purchased; Faisal Saud al Fulaig, a Kuwaiti businessman and Financial General stockholder; Bank of Credit and Commerce International, a London financial institution chartered in Luxembourg, and Aga Hassan Abedi, president of BBCI.
According to the SEC complaint, Lance, Stephens and Metzger, through Abedi and his bank, arranged for each of the four Arab buyers to acquire just under 5 percent of Financial General.
The SEC charged that by not identifying the actual buyers of the stock and their motives, the defendants prevented some sellers of Financial General shares from demanding top dollar. On the other hand, some sellers were allowed to negotiate privately and received up to 25 percent above the market price, which at the time ranged from about $9 to $13 a share.
As part of the settlement, the Arabs and other defendants "represent they intend to make, as soon as promptly practicable,' a crash tender offer for . . . all the outstanding shares of common stock . . . at $15 per share, subject to obtaining certain approvals."
If this offer is not made within a year, they agreed to sell all their shares in blocks of at least 100,000 shares at a cash price in excess of $15 a share.
In addition, the foreign defendants agreed to establish a special fund of $1 million. Those filing can collect the difference per share between $15 and the lower price they got for any shares they sold to the defendants.
It was unclear yesterday what the settlement of the SEC suit will mean to a private suit that was filed by Financial General against the same defendants, with the exception of Middendorf. The allegations in the private suit are virtually the same as those in the SEC action.