The former president of a publicly traded Raleigh company is accusing state Sen. Tony Rand of sharing insider information with other North Carolina politicians.
Paul Feldman, who says he was illegally fired from Law Enforcement Associates in August, made the claims in a complaint filed with the U.S. Department of Labor. He said that Rand, one of the state's most powerful lawmakers, schemed to profit from insider trading and manipulating the value of the company's stock.
Rand called the allegations "insane" and "hogwash."
Rand, a Fayetteville Democrat who is stepping down as state Senate majority leader this month, has been chairman of LEA's board since 2003. The company, which makes security and surveillance equipment, was spun off in 2001 from Sirchie Finger Print Laboratories, a Franklin County company started by former state Sen. John Carrington, a Republican.
Rand said Wednesday that he is offended by Feldman's allegations, adding, "There's no truth to any of this."
LEA disclosed Feldman's allegations, including his Nov. 17 letter to the Labor Department, in a filing with the Securities and Exchange Commission on Tuesday.
In his complaint, Feldman alleges that he saw a list that included about 50 North Carolina politicians who bought large amounts of LEA stock in 2004 and 2005. That list included "former and present governors" and Feldman claims the list "strongly suggested that these individuals had invested in LEA stock based on inside information obtained from Rand or Carrington, or other LEA insiders."
Feldman also claims that Rand told another LEA executive that he previously had made money trading the stock of First Citizens Bank using inside information from the bank's president, Frank Holding, and that he "planned to do the same to LEA stock." The Holding family, which controls First Citizens Bank of Raleigh, also owns a large stake in First Citizens of South Carolina, a separate publicly traded company.
"He's a disgruntled ex-employee," Rand said of Feldman. "I'm embarrassed that Frank Holding has even been mentioned in this mess. But I guess that is part of it, when you are in business and in politics. People think you are fair game, and maybe you are."
Rand said the allegations had no effect on his decision to step down as Senate majority leader, which he announced on Nov. 4. He said he didn't find out about the allegations until last week.
Barbara Thompson, a spokeswoman for First Citizens of Raleigh, said the claims are "totally unfounded."
2 governors had LEA stock
At least two prominent Democrats did own LEA stock. Former Gov. Mike Easley, a longtime friend of Rand, reported owning the stock on state ethics forms in 2007 and 2008.
The exact amount of stock Easley held is not required to be listed on the forms, but the threshold for reporting is $10,000. On the day Easley filed in 2008, April 14, he held at least 18,800 shares, a number based on the stock's price of 53 cents per share at that time.
Gov. Bev Perdue purchased a little more than $1,000 worth of LEA stock in 2002 when she was lieutenant governor, said her spokeswoman, Chrissy Pearson. The stock was listed only on her 2006 ethics disclosure form because that year its value exceeded the $10,000 minimum threshold. Perdue still owns every share of the stock she purchased in 2002, Pearson said.
"The governor absolutely never took part in any insider trading of this stock or any other, and any assertions that she did are not only untrue but insulting and outrageous," Pearson said.
Any violations of state and federal insider trading laws could lead to civil fines or criminal charges, even if the participants didn't profit from the insider information, said James Cox, a professor of corporate and securities law at Duke University.
The price was volatile
"Penny stocks are notorious for manipulation" because the shares tend to be volatile and don't have to move much for investors to make a lot of money, he said.
In fall 2004, when Feldman claims there was insider trading, LEA's shares surged from a two-year average price of about 60 cents to above $6 in weeks. At its peak, in January 2005, the stock closed as high as $10.86.
The rapid rise followed LEA's news that the company was planning to introduce a line of stun guns. That plan never materialized.
Its stock now trades for pennies. On Wednesday, the shares rose 2.5 cents to 14 cents.
Feldman also contends that LEA sold video equipment and other products through a sister company controlled by Carrington to police in the Dominican Republic. That violated federal export laws, Feldman alleges.
In December 2005, Carrington pleaded guilty to violating U.S. export laws between 2000 and 2004 for selling Sirchie equipment to China. He was sentenced to a year of probation, paid an $850,000 fine and was barred from exporting for five years.
Feldman wrote that special agents for the FBI and IRS have interviewed him in regard to his allegations.
LEA: Claims 'groundless'
Rand said he has not been contacted by law enforcement officials. SEC filings show that Rand now owns about 140,000 LEA shares. He filed to sell 10,000 shares in Dec. 2005 when the shares had fallen to about $2. That's the only SEC filing showing Rand selling shares in 2004 and 2005.
LEA officials replied in its SEC filing on Tuesday that Feldman's "claims are groundless, and are an attempt by a disgruntled former executive to seek retribution from the company."
The company also wrote that Feldman was removed as CEO in August for "insubordination" and "in the face of poor performance."
Feldman claims that Rand and other LEA board members fired him in late August when he was hospitalized for two days because of a "mini-stroke" and could not attend the meeting to defend himself.
Feldman, who lives in Cary, referred questions to his lawyers with the Employment Law Group in Washington.
Tom Harrington, a lawyer at the firm, said he couldn't discuss what other N.C. politicians' names are on the list of people who allegedly engaged in insider trading of LEA stock. That list has been "provided to federal investigators," Harrington said.
Feldman, LEA's top executive for 19 years, wants reinstatement as CEO and president, or damages for lost compensation, and "damages to his career, reputation and earning capacity." He claims he was fired illegally under federal whistle-blower laws.
Staff Writers J. Andrew Curliss, Rob Christensen and Benjamin Niolet contributed to this report.
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