A federal conspiracy trial opened yesterday against the president and the former financial officer of Insituform East Inc., a Landover company that pioneered an in-ground method of repairing sewer pipes and then became the focus of Maryland's first insider-trading case.
President Arthur G. Lang III, 40, of Mitchellville and Thomas C. Trexler, 41, of Kensington, a former vice president who left the company in 1988, also are charged with making false statements to the Securities and Exchange Commission and with securities fraud in the case, which is expected to continue for about five weeks before U.S. District Judge William N. Nickerson in Baltimore.
U.S. Attorney Breckinridge L. Willcox told the jury in his opening statement yesterday that the two men basically "were selling the stock they owned in the company while they were in possession of information that was not available to outside investors -- indeed, not available to anyone else, because of the deception that these two engaged in, assisted by co-conspirators in falsification of the books and records of the company to portray a favorable financial position."
From September 1985 until May 7, 1987, the two are charged with overstating income and understating expenses, sometimes destroying records and creating false ones, to produce an upbeat third-quarter re
port to the SEC.
With the stock market responding favorably, the two men sold their stock -- a sale that netted more than $2.1 million for Mr. Lang and more than $1.7 million for Mr. Trexler, Mr. Willcox said.
But the false financial numbers had to be changed as the fourth-quarter year-end report loomed -- along with an audit by an outside firm, he said.
When the losses were reported, the stock slumped from $24.50, before the reversal was reported in late August, to $10.87 by the end of September 1986.
Defense attorney Julian S. Greenspun told the jury that Mr. Lang started the company in 1978 when he learned about and obtained a franchise for a patented European method of using a chemical solution and a liner that, injected into a broken pipe, forms a pipe-within-a-pipe and spares municipalities the expense and disruption of excavating for repairs.
The Washington Sanitary Sewer Commission became a big client, and the business spread throughout the mid-Atlantic region, growing with multimillion dollar sales from eight employees -- including Mr. Lang -- to more than 120 today, the defense attorneys said.
In Baltimore, the company's projects included repairs to underground pipes along Howard Street.
The firm's stock went public in 1981, trading over-the-counter and attracting favorable recommendations.
Even 1986 was a good year for Insituform, Mr. Greenspun said, and with $5 million in the bank and in bonds, Mr. Lang had no reason to falsify the company's books
"This is an accounting case," said Stephen H. Sachs, one of Mr. Trexler's attorneys. Just seven entries out of thousands form the heart of the prosecution, he said, categorizing them as mistakes or as legitimate differences in opinion about accounting methods.