A former Good Guys Inc. director has agreed to pay nearly $150,000 to settle charges that he illegally profited from the 2003 sale of the electronics retailer after learning about confidential takeover talks while he was on the company's board of directors.
John E. Martin, a longtime restaurant executive who ran Taco Bell Corp. from 1983 to 1996, settled the case filed Tuesday by the Securities and Exchange Commission without admitting or denying wrongdoing.
"It was an egregious case of insider trading," said Michael Dicke, an assistant district administrator for the SEC in San Francisco, where the civil charges were filed.
Besides fining Martin, the SEC banned him from serving as an executive or director of a publicly held company for the next five years. He is currently chairman of Newport Beach-based Culinary Adventures, a privately held company that operates six Orange County restaurants under different brand names.
In a statement, a spokesman for Martin emphasized that the executive lost far more money than he made on the Good Guys stock, which he accumulated during his 13 years on the company's board.
"Mr. Martin made the decision to settle ... because the cost to litigate this matter over an extended period would far exceed the cost of the settlement itself," spokesman David Paine said.
Good Guys, based in the San Francisco Bay area city of Alameda, operates 71 stores in California, Nevada, Oregon and Washington.
Martin, 59, is a well-known figure in the restaurant industry, where he has worked for nearly 40 years.
He enjoyed his greatest success at Taco Bell, a Mexican fast food chain that grew from $600 million to more than $5 billion in annual sales under his leadership. He also has run La Petite Boulangerie and Hardees restaurants and served on several other corporate boards, including specialty retailer Williams Sonoma Inc.
The case against Martin revolves around his trading patterns in the months leading up to a September 2003 agreement to sell Good Guys to CompUSA for about $55 million, or $2.05 per share.
The SEC alleges Martin bought 100,000 shares of Good Guys stock for $1.30 per share on Aug. 5, 2003, less than three weeks after he and other board members were informed the company was in confidential talks to sell to Dallas-based CompUSA. Later that day, Martin and other Good Guys board members authorized Good Guys' management to continue the CompUSA negotiations, the SEC said.
Martin acquired another 9,500 Good Guys shares after the August meeting, the SEC alleged. Regulators said Martin bought all 109,500 "on margin," meaning he financed the transactions with borrowed money. After Good Guys' stock climbed by 33 percent on news of the CompUSA sale, Martin sold the shares for a total profit of $73,625, the SEC said.
Tuesday's settlement requires Martin to relinquish his profits from that sale and pay an additional $76,360.
Paine said Martin lost more than $2 million on his investments in Good Guys. Based on SEC filings, Martin owned 743,083 Good Guys shares two months before the company's management team told the board about the CompUSA negotiations.