George Kline, Erich Kline and Christian Kline

Litigation Release No. 17475 / April 17, 2002

SECURITIES AND EXCHANGE COMMISSION v. GEORGE KLINE, ERICH KLINE AND CHRISTIAN KLINE, U.S. District Court for the District of Minnesota 02-CV-817 (Doty) (April 17, 2002)

COMMISSION FILES COMPLAINT AGAINST
GEORGE KLINE , ERICH KLINE AND CHRIS KLINE IN
ALLEGED MULTI-MILLION DOLLAR INSIDER TRADING SCHEME
GEORGE KLINE CONSENTS TO PERMANENT
DIRECTOR AND OFFICER BAR

The Commission today filed insider trading charges in the United States District Court for the District of Minnesota against George Kline and his sons Erich and Chris Kline. All three were criminally sentenced earlier in the day for their roles in the scheme. The complaint alleges that George Kline served as a member of the board of directors of many publicly-held companies in the Minneapolis area and that over the course of many years he knowingly traded the stock of those companies based on inside information. The complaint further alleges that George Kline directed his sons to execute trades based upon inside information. In addition, the complaint alleges that he passed on inside information to Erich Kline, Robert Hibbs and others who then traded based on that information. It is also alleged that Robert Hibbs, an acquaintance who was involved in corporate acquisitions, passed along inside information to George Kline which he then traded on.

The complaint alleges that Erich Kline, a stock broker, assisted his father by trading the stock of companies about which he knew his father had inside information. The complaint further alleges that he knowingly assisted in concealing his father's trading by placing trades through a company which George Kline controlled, Protective Mouthguard Inc. ("PMI"). It is additionally alleged that Erich Kline personally traded based upon inside information he obtained from his father and that he passed along inside information to his some of his clients who then traded.

The complaint alleges that Chris Kline helped his father conceal his trading by conducting trades through PMI's brokerage accounts. The complaint also alleges that he engaged in numerous trades for the stock of companies on whose boards he knew his father served. It is also alleged that Chris Kline placed trades in his own brokerage accounts at the same time his father was directing him to place trades through PMI. The complaint alleges that Chris Kline knew some of these trades involved the stock of companies for which George Kline served on the Board of Directors and had access to inside information.

In addition, the complaint alleges that George Kline failed to file required reports with the SEC which would have reported his trading activity. Finally, it is alleged that the defendants engaged in a scheme to sell short the stock of companies for which George Kline served as a board member in violation of federal law.

George Kline consented, without admitting or denying the allegations in the complaint, to the entry of an order of permanent injunction enjoining him from violating Sections 10(b), 16(a) and 16(c) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 16a-3 thereunder, and to an officer and director bar pursuant to Section 21(d)(2) of the Exchange Act. Erich Kline consented, without admitting or denying the allegations in the complaint, to the entry of an order of permanent injunction enjoining him from violating Sections 10(b), 16(a) and 16(c) of the Exchange Act and Rules 10b-5 and 16a-3 thereunder. Chris Kline consented, without admitting or denying the allegations in the complaint, to the entry of an order of permanent injunction enjoining him from violating Sections 10(b), 16(a) and 16(c) of the Exchange Act and Rules 10b-5 and 16a-3 thereunder.

The complaint notes that the Commission did not seek disgorgement and penalties because plea agreements reached between the Klines and the U.S. Attorney's Office provided for the payment of restitution and substantial penalties in the criminal action: George Kline, approximately $5 million; Erich Kline approximately $450,000; Chris Kline approximately $475,000.

The Commission wishes to thank the Office of the United States Attorney for the District of Minnesota for its assistance and cooperation in this matter.

SEC Complaint in this matter.