NWA stock sale raises questions

09/20/2005

Liz Fedor,
Star Tribune
September 20, 2005

Gary Wilson, chairman of the Northwest Airlines board of directors, sold $1.8 million worth of the airline’s stock less than a month before the carrier filed for bankruptcy last week.

A Northwest spokesman said Monday that Wilson’s sales were in conjunction with a trading plan that Wilson disclosed in a filing with the Securities and Exchange Commission (SEC) in April. Still, two Minneapolis attorneys told the Star Tribune in interviews Monday that Wilson’s stock sales merit scrutiny and raise propriety questions.

Wilson sold 339,660 shares of Northwest stock from Aug. 18 to 26 when the stock was trading between $5.11 and $5.84 per share. Those transactions were reported Monday in Northwest filings to the SEC.

Previously, Wilson disposed of almost 3 million shares of stock, valued at $19.5 million, between mid-May and mid-August. Those transactions also took place in concert with Wilson’s trading plan.

The latest round of stock sales occurred as Cadwalader, Wickersham & Taft, a New York law firm, was doing pre-bankruptcy work for Northwest. In addition, the Seabury Group, a restructuring and consulting firm, is listed as incurring expenses beginning July 13, according to bankruptcy court documents.

Terry Fruth, a Minneapolis attorney focusing on shareholder litigation, said filing a plan “doesn’t make you bulletproof from insider trading” violations.

“You look to when the plan was filed and what was knowable. There is always the possibility, as events unfold, that it turns out you can’t follow through with your plan,” said Fruth, of the Fruth, Jamison & Elsass law firm.

However, he said, disclosure of pending sales is the regulatory equivalent of giving “notice to the investing world of the plan.”

Based on the high-profile nature of Northwest’s bankruptcy case, Fruth said he thinks the SEC is monitoring insider sales at Northwest. “I would hope the cop on the beat has been watching the traffic go through the intersection,” he said.

Fruth characterized Wilson’s transactions as “a question of optics—how does it look to the investment community?”

George Singer, a corporate and bankruptcy attorney with Lindquist & Vennum, said Wilson probably consulted legal and financial counsel before filing his trading plan.

Yet, in assessing Wilson’s recent stock sales, Singer said, “It does raise a specter of concern to those that could stand to lose their entire investment in Northwest stock” because of the bankruptcy filing.

Although Northwest’s board did not pull the trigger on a bankruptcy filing until Wednesday, it prepared for months for the possibility, Singer said.

A key question relating to Wilson’s actions was whether he knew in April when he filed his stock-sale plan that it was likely Northwest would file for bankruptcy protection later in the year, Singer said.

“Was the writing on the wall when he had the time to control the disposition of the shares?” Singer asked.

Wilson, together with California financier Al Checchi, led a leveraged buyout of Northwest Airlines in 1989. Wilson has been chairman of the airline since 1997; before that he shared the position with Checchi.