Washington, D.C., Sept. 23, 2004 LAWFUEL – Best law news, SEC, attorney, law firm news – The Securities and Exchange Commission
today filed charges against John W. Adams, the former Chief Executive
Officer of Hawaiian Airlines, Inc., and AIP LLC, an entity managed by Adams
that held a controlling interest in Hawaiian Airlines. Adams and AIP were
charged for their role in Hawaiian’s failure to disclose important negative
financial information to shareholders in a tender offer from which Adams and
AIP each benefited.
During a June 2002 issuer tender offer in which Hawaiian repurchased $25
million in stock from its shareholders, Adams learned that the company’s
financial condition had significantly deteriorated, but failed to disclose
the information to minority shareholders who were deciding whether or not to
tender their shares. Minority shareholders who, unlike Adams and AIP,
declined to tender their shares, found the value of their stock
significantly diminished when the negative financial information was made
public. Within nine months after the tender offer, Hawaiian was in
bankruptcy. While certain minority shareholders lost their opportunity to
realize the benefits of the tender offer, Adams and AIP benefited by more
than $17 million by selling their shares to Hawaiian in the tender offer.
Adams and AIP have agreed to a settlement in which, among other things, they
agree to repay nearly $2.5 million in excess profits from their sales of
Hawaiian stock in the tender offer. In connection with the settlement,
Adams and AIP neither admitted nor denied the Commission’s findings.
Helane Morrison, District Administrator of the Commission’s San Francisco
District Office, said, “Adams played a dual role as both CEO of Hawaiian and
manager of its controlling shareholder, and he and AIP stood to profit if
fewer minority shareholders tendered their shares. Adams was aware of the
company’s declining financial health, yet he did not provide that
information to minority shareholders.”
Added Marc Fagel, the Assistant District Administrator in San Francisco,
“Just as is the case with companies issuing stock to the public, companies
offering to repurchase stock from shareholders cannot do so based on
outdated, inaccurate information.”
Also today, the court-appointed trustee for Hawaiian Airlines filed a motion
recommending that the Bankruptcy Court accept a settlement reached between
the Commission and Hawaiian relating to this matter. As part of the
settlement, Hawaiian agreed to settle charges that in connection with the
2002 tender offer it violated Section 13(e)(1) of the Securities Exchange
Act of 1934 and Rule 13(e)-4(j)(2) thereunder, which require a public
company conducting a self-tender offer to disclose promptly any material
changes in the information provided to securities holders. Under the
proposed settlement, Hawaiian consents to the entry of an order that it
cease and desist from violations of these provisions.
Hawaiian initiated the $25 million self-tender offer in June 2002, shortly
after the company received $25 million in payments from the federal
government to compensate air carriers for losses related to the attacks of
Sept. 11, 2001. Materials provided to shareholders represented that the
tender offer was a prudent use of the company’s resources, and that the
company would remain solvent following completion of the tender offer.
According to the Commission, however, Adams was aware that the company was
experiencing a significant financial decline which was not disclosed to
shareholders. Among other things, during the pendency of the tender offer
Hawaiian revised its financial projections for 2002 from a $12 million
operating profit to a $9.3 million operating loss.
Adams and AIP tendered their shares and received over $17 million of the $25
million paid by Hawaiian for the stock. Had those Hawaiian shareholders who
declined to tender their shares been informed that the continued solvency of
the company was far less certain than initially represented, a
proportionately smaller number of AIP’s and Adams’ shares would have been
purchased by the company. Hence, AIP and Adams profited at the expense of
non-tendering shareholders who were unaware of the company’s financial
decline.
The Commission’s Order charges Adams and AIP with causing Hawaiian’s
above-referenced violations of the Securities Exchange Act of 1934. Without
admitting or denying the Commission’s findings, Adams and AIP consented to
an order that they cease and desist from causing violations of these
provisions, and agreed to pay a total of approximately $2.5 million in
disgorgement and prejudgment interest.
