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U.S. Securities and Exchange Commission

U.S. Securities and Exchange Commission

Litigation Release No. 18250 / July 25, 2003

SEC v. Edward Fruchtenbaum, (U.S.D.C. N.D. Ohio, Civil Action No. 1:02 CV 827, filed May 1, 2002)

Former President of American Greetings Corporation Settles Insider Trading Case

The Securities and Exchange Commission announced today that Edward Fruchtenbaum (Fruchtenbaum), the former president and chief operating officer of American Greetings Corporation (American Greetings), has settled insider trading charges brought against him by the Commission. On July 22, 2003, the Honorable Kathleen M. O'Malley, Judge of the United States District Court for the Northern District of Ohio issued a judgment that enjoins Fruchtenbaum from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder; orders him to pay disgorgement of $79,437, prejudgment interest of $28,711, and a civil penalty of $238,311, for a total of $346,459; and prohibits him from serving as an officer or director of a publicly held company for five years.

The Commission filed its complaint against Fruchtenbaum on May 1, 2002. The case arose from Fruchtenbaum's unlawful sale of American Greetings common stock while he was a director, the president and the chief operating officer of the company. American Greetings, headquartered in suburban Cleveland, Ohio, is in the business of creating, manufacturing and distributing greeting cards and social expression products.

The Commission's Complaint alleged that in November 1998, Fruchtenbaum learned from internal company forecasts that in the upcoming fiscal year American Greetings' revenues and earnings were likely to fall materially short of both public expectations and the company's own strategic forecasts. The Commission charged that in December 1998 Fruchtenbaum used this information to exercise options to buy American Greetings stock and then sell the acquired shares in same-day, cashless transactions. The options Fruchtenbaum exercised in December 1998 were all the vested options he held at the time. The Commission alleged that Fruchtenbaum sold his shares after the chief executive officer and the general counsel of American Greetings admonished him not to do so. On February 24, 1999, American Greetings publicly announced that it expected revenues and earnings for the next fiscal year to be materially below prior expectations. That day, the price of the company's stock fell approximately 32%, from $35.0625 to $23.875. The Commission alleged that Fruchtenbaum avoided material losses by selling his shares of American Greetings stock before the public announcement of the revenue and earnings forecasts. Fruchtenbaum consented to the entry of the judgment without admitting or denying the allegations in the Commission's complaint.



Modified: 07/25/2003