Presto gets permanent injunction
Judge's order bans company from interstate commerce
Posted: Dec. 14, 2005
A federal judge has issued a permanent injunction that forbids National
Presto Industries Inc. (stock:
NPK) from engaging in interstate commerce and orders the Eau Claire
manufacturing company to register as an investment company.
The order from Judge Charles R. Norgle in Chicago follows a ruling
against Presto in late October in a lawsuit brought by the U.S. Securities
and Exchange Commission that alleged that Presto is an investment company
because of its large cash holdings.
In a summary judgment, Norgle ruled that Presto was subject to SEC
regulations for investment companies because it had more than 40% of its
assets in cash and marketable securities.
Despite the injunction, which was issued Friday, Presto continues to
operate its three divisions, which make small appliances, adult diapers and
ammunition.
"It would be a fantastic hardship if we had to send 500 people home,"
said James Bartl, senior vice president and secretary.
Presto, with annual sales of $159 million in 2004, finds itself on the
receiving end of the unusual court order after 15 years of criticism from
shareholders and analysts for sitting on a huge stash of cash that at one
time totaled more than $225 million. The money was accumulated during the
1970s and 1980s from the sale of subsidiaries.
Critics said Presto should use the cash to invest in businesses that
could boost earnings. But the Cohen family, which controls the company with
voting stock, said they were holding out for a good bargain on an
acquisition.
Presto's attorneys on Tuesday filed a notice of appeal of Norgle's
decision, Bartl said. The company also intends to file for a stay of the
injunction, he said.
Presto redirected some of its investments from variable rate dividend
notes to money market funds after the October ruling to comply with the
Investment Company Act of 1940 so that Presto could avoid registering, Bartl
said. At the end of the second quarter, Presto's cash and marketable
securities stood at $156 million.
Presto is trying to get a clarification of the injunction from the SEC,
Bartl said.
Norgle's order forbids all company officers and employees from using mail
or any other interstate commerce method to sell or buy securities; from
controlling any investment company that buys or sells securities across
state lines; and from engaging in any interstate commerce or business.
The SEC filed its action in 2002 after a critical review of Presto's
business practices by a forum of the New York Society of Security Analysts
and a shareholder lawsuit that accused Presto of violating the Investment
Act by holding too much cash. Presto attracted the attention of the New York
analysts because institutional investors, who were required to buy Presto
shares as an index fund investment, were frustrated by the poor return and
became vocal critics.
Gary Lutin, a New York investment banker who headed the analysts' forum,
said Norgle's decision made it clear that evasion of securities regulations
would not be tolerated.
"An injunction like this, applicable to the company as well as the
individuals responsible for its conduct, sends a pretty blunt message to
people who play games with the rules," Lutin said.
The SEC suit against Presto was the first action of its kind filed by the
commission since the 1980s.
"The entire case is rare," said Peter Chan, assistant regional director
for the SEC.
Presto's stock closed Wednesday at $43.78, up 18 cents.
From the Dec. 15, 2005, editions of the Milwaukee Journal Sentinel
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