Fired CEO at Raleigh company accuses Tony Rand of insider trading
Posted December 2, 2009 9:54 a.m. EST
Updated December 2, 2009 7:12 p.m. EST
Raleigh, N.C. — Tony Rand, the powerful Democratic state senator from Fayetteville and chairman of the board at Law Enforcement Associates, is being accused of insider trading and other violations by the company's former chief executive officer.
Paul Feldman, a resident of Cary who also remains a member of the company's board, made the allegations in a letter protesting his firing that he submitted to the U.S. Department of Labor on Nov. 17.
LEA, which manufactures surveillance and security products, fired Feldman on Aug. 27.
Rand announced last month that he would step down as Senate majority leader to become a member of the state parole commission. He has been a member of the LEA board since 2003.
Feldman alleged that Rand and about 50 other politicians, including Gov. Beverly Perdue and some of her predecessors, engaged in insider trading in 2004 and 2005 and that Rand also was involved in insider trading with First Citizens Bank stock.
He said he and Marty Perry, former vice president of sales at LEA, were interviewed by the FBI and IRS in September regarding information they had provided to the U.S. attorney in Raleigh.
Rand called the allegations a lie.
"It's a total fabrication. It's ludicrous. It's insulting," he said. "While you're looking at this, you might as well look at 'Snow White and the Seven Dwarfs' too because one fairy tale is as good as another one."
He said he's bought and sold LEA stock over the years and that all of his transactions are public record.
Perdue's staff checked her records and said she bought more than $1,000 of LEA stock in 2002 and still holds all of it.
"Any assertion that she participated in any insider trading is not only untrue, but outrageous," said Chrissy Pearson, Perdue's spokeswoman.
In a Tuesday filing with the Securities Exchange Commission, LEA disputed Feldman’s charges. However, the company also said it had “engaged separate independent legal counsel to conduct an investigation of all allegations and to defend the company in these matters.”
“Management and the company’s board believe Mr. Feldman’s claims are groundless and are an attempt by a disgruntled former executive to seek retribution from the company,” Paul Briggs, the chief financial officer at LEA, wrote in the filing.
Company officials said Feldman was fired because they lost faith in his ability to lead the company and because they found him to be insubordinate.
Briggs said LEA would “vigorously defend” itself.
“The company does not believe the allegations made by Mr. Feldman in the DOL Letter or complaint have any merit, nor does the company believe the resolution of these matters will have any material effect upon the financial statements or other information contained in its reports to the SEC,” he wrote.
LEA acknowledged in its filing that Feldman’s complaint is "under review" by the Department of Labor.
Feldman alleged that he was fired despite whistle-blower protection provisions "in retaliation for disclosing information to, and participating in investigations by, federal authorities relating to conduct by (LEA) that he believed violated federal law and (SEC) rules,” the company said in the SEC filing.
Feldman worked at LEA for 20 years, including 19 years as president. He has been a board member since 2003.
Shares in LEA fell 50 percent, to 6 cents, in trading Tuesday.
The Feldman letter became public as part of the SEC filing.
In the letter, Feldman also accuses LEA of working with a company called Safesource that is 50 percent controlled by former LEA owner John Carrington to sell police department-related equipment that Carrington later exported to the Dominican Republic.
In 2006, Carrington, a former state senator, pleaded guilty to charges of export violations to China that involved a company he once owned called Sirchie Labs. He was sentenced to probation and was fined $850,000.
According to Feldman’s letter, Carrington was also banned for five years from selling goods for export.
Feldman alleges that he reported the possible export violation to the LEA board in December 2007, and the board disclosed the information to Carrington but didn't disclose government investigations of the deal to investors.
"He made some allegations about bad stuff. We said 'What? If it's bad stuff, you better tell us because we have a fiduciary responsibility, and you better report it to proper authorities,'" Rand said. "He never did."
In the SEC filing, LEA said Feldman also accused the company of mail fraud, wire fraud, misstatements, misrepresentations and omissions in SEC filings, stock manipulation and falsifying minutes of company board meetings.
The mail and wire fraud allegations involve payments to LEA's attorney that he was for "personal legal work previously performed for Mr. Rand,” according to the company.