SEC Settles With Two Former L.A. Gear Execs

The Securities and Exchange Commission settled Thursday with two former L.A. Gear executives accused of inflating the company’s earnings and profiting from insider trading in 1990.

Gilbert N. Schwartzberg, 52, a former vice chairman of L.A. Gear, and Arden Franklin, 42, a former controller, neither admitted nor denied guilt in settling the charges. Both men resigned from the Santa Monica-based footwear company in 1992.

Schwartzberg agreed to pay $1 million, reflecting illegal profits and penalties, the SEC said. The agreement bars Schwartzberg from ever serving as an officer or director of any public company.

Consequently, Schwartzberg resigned Thursday from the board of Sterling West Bancorp, a small Los Angeles bank holding company, the SEC said.

Franklin agreed to $20,185 in illegal gains and penalties, the SEC said.

Neither Franklin, a resident of Culver City, nor his attorney, Dennis Seeley of Century City, could be reached for comment.

Schwartzberg released a statement through his attorney, John Quinn of Riordan & McKinzie, stating that he settled “to avoid the very significant distraction and cost attendant to this type of complex, protracted litigation.�

An attorney in Los Angeles, Schwartzberg is also a director of the City of Hope in Duarte.

The SEC said that Schwartzberg and Franklin overstated L.A. Gear’s earnings for the quarter ending Feb. 28, 1990 by 40%.

To conceal their action, the two men directed the company’s accounting staff to add $6.8 million in fictitious inventory to L.A. Gear’s books and records, the SEC said.

L.A. Gear announced its inflated earnings on March 29, 1990. Five days later, the SEC said, Schwartzberg and Franklin sold stock at inflated prices, ranging from $39 to $40.375 a share.

When L.A. Gear announced on June 1 that earnings in the subsequent quarter would be below expectations, the company’s share price fell to $30.625, the SEC said.