Last October, when Johnny Carson and National Kinney Corp. were quietly negotiating to purchase the Aladdin Hotel-Casino in Las Vegas, the TV entertainer's wife happened to mention the pending deal to her brother. The brother, Peter Ulrich of West Seneca, N.Y., bought National Kinney stock and made a quick profit.
So did a woman at the Beverly Hills Health Club who overheard Joanna Carson describing the Aladdin deal on the phone with her brother.
So did the father-in-law of Carson's personal attorney, who learned about it from his daughter, the attorney's wife.
Yesterday, the three investors, and one more who didn't sell his stocks, were sued by the Securities and Exchange Commission and, as part of a settlement, agreed to give up their windfall profits.
In the civil complaint, filed at U.S. District Court in Manhattan, the SEC charged the four with buying the stock on the basis of nonpublic information, to the detriment of the sellers. The defendants agreed to return their profits to the sellers.
Besides Ulrich, the defendants in the suit were Emily Johns, Max Beck and Fredric J. Freed. Also named was the company, National Kinney, for allegedly making untrue statements to the American Stock Exchange about the reasons for unusual activity in the stock before the company's dealings with Carson.
All agreed to the settlement terms, while neither admitting nor denying the allegations made by the SEC.
According to court papers, National Kinney began last spring exploring ways to get into the casino-hotel business. The company, which supplies construction and maintenance services to the real estate industry, explored deals in the United States and overseas.
In September, when National Kinney began direct negotiations with the Aladdin management, the price of the company's stock began to climb on heavy trading volume.
Neither the public nor the American Exchange knew about the negotiations, and the SEC says that a company executive misled the exchange on several occasions when asked about the activity in the stock.
The company issued a press release Oct. 4 saying it was "exploring the potential for entry into the hotel-casino gaming business in the United States."
Later that month, Johnny Carson interests entered the scene, according to the SEC.
Under the terms of the proposed joint venture between Carson and National Kinney, the entertainer was to get 500,000 shares of the company's stock. And the Las Vegas hotel was to be renamed "Johnny Carson's Aladdin Hotel."
Handling negotiations for Carson was his personal attorney, Henry Bushkin, whom Carson often jokingly refers to during his Tonight Show monologues as "my lawyer, Bombastic Bushkin."
On Oct. 22, during a meeting at Carson's home in Los Angeles, it was decided that a press release describing the agreement would issued Oct. 24.
Joanna Carson sat in on part of the meeting, and that afternoon she called her brother from the health club and told him about the Aladdin deal, the SEC said.
Ulrich allegedly asked her whether National Kinney was a publicly owned company. She called him back later "without informing her husband" to say it was, the SEC suit alleged.
The next day, Ulrich brought 2,000 shares of National Kinney, and had his mother and aunt buy 1,500 more for his benefit. According to the suit. Ulrich's net profit was $4,228.29.
Emily Johns, an employe of the health club, was told by Joanna Carson "that there was something going on between Johnny and the Aladdin," the SEC said. She also allegedly overheard some of Joanna's conversation with Ulrich. Her profit from trading on the information: $1,260.
Judith Bushkin, the wife of Carson's attorney, told her father that it would be a "good idea" if he bought some National Kinney stock, the suit alleged.Her Father, Max Beck, allegedly bought 5,000 shares Oct. 22 and sold them Oct. 24. right after the proposed agreement was disclosed in a press release, for a net profit of $4,496.01.
Fredric J. Freed, who is associated with Bushkin's law firm, allegedly bought stock Oct. 22, Valued at $4,980. He apparently never sold the stock, and as part of the settlement must "disgorge" the stock to the sellers.
In February, Carson and National Kinney ended their short-lived relationship without buying the Aladdin.