Executives at Ruder Finn, a 50-year-old New York PR house, were faced with an unusual challenge when they learned March 20 that a Ruder Finn senior VP and a former account representative were charged with insider trading in two lawsuits filed by the Securities and Exchange Commission.
It was a quandary company heads knew they could face in two very different ways: They could be tight-lipped or forthcoming and open.
They decided on the latter, and it's a move that likely will play out as being the right one.
Ruder Finn has enjoyed a fairly sterling reputation tied to its PR and investor relations services and has a list of new clients that includes Millennia III, Continental Cablevision and the Netherlands Foreign Investment Agency. The lawsuits have proven to be a precarious situation for this 400-employee worldwide operation.
The first suit was brought March 20 in U.S. District Court in Manhattan against senior VP Susan Smirnoff - who has been suspended from Ruder Finn pending an upcoming meeting of the firm's eight-person executive committee. She was charged with passing confidential information to her husband, Kirk J. Zachary (also a defendant in the suit), about the acquisition of Genetic Therapy Inc. by Sandoz two years ago.
Ruder Finn was hired to handle the PR surrounding the acquisition announcement.
In conjunction with filing the suit, the SEC issued the terms of a settlement it has reached with Smirnoff and Zachary. The couple have been ordered to pay $5,527 in unlawful profits and $728 in interest, according to Daniel Nathan, a lawyer with the SEC. Nathan pointed out, however, that the settlement doesn't mean that Smirnoff agrees with the charges levied against her.
The second case, filed in U.S. District Court in Savannah, Ga., on the same day, involves former Ruder Finn staffer Susan Hirsch - whom company executives say left the agency in the spring of 1996 to move to Italy. She has been named in the suit along with her brother Gregory M. Hirsch and four other defendants in a similar suit involving the Sandoz deal. Hirsch's brother and his friend Danny Kaminsky (one of the other defendants ) allegedly made $251,290 in illegal profits linked to the information Hirsch disclosed about the $21-a-share cash tender offer. Following the tender offer announcement, referred to in court documents as "Project Storm," GTI's share price jumped 40 percent.
But for Ruder Finn, the delicacy of the situation isn't only because of the nature of the SEC lawsuits. Even though the firm itself hasn't been charged with any wrongdoing, it's the firm that will likely undergo intense scrutiny from its ky constituents: the public, the press and the corporate principals it deals with regularly.
Probes into the insider trading matter began more than a year ago when SEC investigators contacted Ruder Finn Executive VP Rosalind Safrin who handles the agency's human resources and legal issues.
Safrin was told that the commission was investigating information it had received about possible insider trading involving Ruder Finn staffers. During the investigation, it was Safrin who was charged with turning over documentation, such as time reports and telephone print outs, to the SEC.
"But the SEC never told us they were filing the lawsuit," Safrin said last week. Ruder Finn executives learned of the allegations (among approximatelty 50 of these kinds of cases the SEC will file this year) when a Dow Jones reporter called last week inquiring about the suits.
Since the news broke, company heads have granted several press interviews with trade journalists.
It also forwarded to PR NEWS two internal memos it issued to employees about the controversy as well its employee guidelines (which all employees sign off on) dealing with insider trading.
"We are trying our best to respond to, and answer, questions from the press," said Ruder Finn President Kathy Bloomgarden. "In addition, I have called [or someone in a senior capacity] has called everyone of our more than 200 clients to say that we deplore this and we have never had an issue of this kind in the years we have been in business."
But from Bloomgarden's seat, that's not an easy task. Because of the sensitivity of the issue involved - revealing client information which led to illegal call options and subsequent stock buys - damage control has become something Ruder Finn executives have devoted several hours to every day since the case hit the press.
"We really believe in educating our own staff and the first steps we took were internal steps to make sure our employees knew what was going on," Bloomgarden added.
In sync with that philosophy, Safrin and Ruder Finn principal Peter Finn added, is the agency's decision to hold a series of staff meetings to make sure that employees are clear about what has transpired and about the seriousness of releasing client information.
It will also eventually have to reveal whether or not Smirnoff is let go.
As of press time last week, a settlement in the second suit had not been reached. (Kathy Bloomgarden, Rosalind Safrin, Peter Finn, 212/593-6400; Daniel Nathan, 202/942-4726)