SEC Charges Former Hawaiian Airlines CEO for Failing to Disclose Adverse Financial Information During Tender Offer


Ex-CEO, Controlling Shareholder Agree to Settle Charges, Pay $2.5 Million in Disgorgement

Washington, D.C., Sept. 23, 2004 -- The Securities and Exchange Commission today filed charges against John W. Adams, the former Chief Executive Officer of Hawaiian Airlines, Inc., and AIP LLC, an entity managed by Adams that held a controlling interest in Hawaiian Airlines. Adams and AIP were charged for their role in Hawaiian's failure to disclose important negative financial information to shareholders in a tender offer from which Adams and AIP each benefited.

During a June 2002 issuer tender offer in which Hawaiian repurchased $25 million in stock from its shareholders, Adams learned that the company's financial condition had significantly deteriorated, but failed to disclose the information to minority shareholders who were deciding whether or not to tender their shares. Minority shareholders who, unlike Adams and AIP, declined to tender their shares, found the value of their stock significantly diminished when the negative financial information was made public. Within nine months after the tender offer, Hawaiian was in bankruptcy. While certain minority shareholders lost their opportunity to realize the benefits of the tender offer, Adams and AIP benefited by more than $17 million by selling their shares to Hawaiian in the tender offer.

Adams and AIP have agreed to a settlement in which, among other things, they agree to repay nearly $2.5 million in excess profits from their sales of Hawaiian stock in the tender offer. In connection with the settlement, Adams and AIP neither admitted nor denied the Commission's findings.

Helane Morrison, District Administrator of the Commission's San Francisco District Office, said, "Adams played a dual role as both CEO of Hawaiian and manager of its controlling shareholder, and he and AIP stood to profit if fewer minority shareholders tendered their shares. Adams was aware of the company's declining financial health, yet he did not provide that information to minority shareholders."

Added Marc Fagel, the Assistant District Administrator in San Francisco, "Just as is the case with companies issuing stock to the public, companies offering to repurchase stock from shareholders cannot do so based on outdated, inaccurate information."

Also today, the court-appointed trustee for Hawaiian Airlines filed a motion recommending that the Bankruptcy Court accept a settlement reached between the Commission and Hawaiian relating to this matter. As part of the settlement, Hawaiian agreed to settle charges that in connection with the 2002 tender offer it violated Section 13(e)(1) of the Securities Exchange Act of 1934 and Rule 13(e)-4(j)(2) thereunder, which require a public company conducting a self-tender offer to disclose promptly any material changes in the information provided to securities holders. Under the proposed settlement, Hawaiian consents to the entry of an order that it cease and desist from violations of these provisions.

Hawaiian initiated the $25 million self-tender offer in June 2002, shortly after the company received $25 million in payments from the federal government to compensate air carriers for losses related to the attacks of Sept. 11, 2001. Materials provided to shareholders represented that the tender offer was a prudent use of the company's resources, and that the company would remain solvent following completion of the tender offer. According to the Commission, however, Adams was aware that the company was experiencing a significant financial decline which was not disclosed to shareholders. Among other things, during the pendency of the tender offer Hawaiian revised its financial projections for 2002 from a $12 million operating profit to a $9.3 million operating loss.

Adams and AIP tendered their shares and received over $17 million of the $25 million paid by Hawaiian for the stock. Had those Hawaiian shareholders who declined to tender their shares been informed that the continued solvency of the company was far less certain than initially represented, a proportionately smaller number of AIP's and Adams' shares would have been purchased by the company. Hence, AIP and Adams profited at the expense of non-tendering shareholders who were unaware of the company's financial decline.

The Commission's Order charges Adams and AIP with causing Hawaiian's above-referenced violations of the Securities Exchange Act of 1934. Without admitting or denying the Commission's findings, Adams and AIP consented to an order that they cease and desist from causing violations of these provisions, and agreed to pay a total of approximately $2.5 million in disgorgement and prejudgment interest.

For more information, contact:

Helane Morrison
District Administrator
(415) 705-2450

Marc Fagel
Assistant District Administrator
(415) 705-2449

San Francisco District Office
Securities and Exchange Commission
(415) 705-2450

See Also:  Administrative Proceeding Release No. 34-50427
Last modified: 9/23/2004