Edward Fruchtenbaum

Litigation Release No. 17499 /May 2, 2002

SEC v. Edward Fruchtenbaum, Civil Action No. 1:02 CV 827 (N.D. OH) (May 2, 2002)

Today, the Commission filed a civil action charging Edward Fruchtenbaum, the former COO and President of American Greetings, with fraud in connection with his sale of 30,000 shares of American Greetings stock on December 21, 1998.

Specifically, the Commission's complaint alleges that in November 1998, internal plans prepared by Fruchtenbaum and other senior managers projected a large earnings shortfall during American Greetings' upcoming fiscal year. The Commission also charges that in November and December 1998, Fruchtenbaum knew the Company's senior managers were moving toward implementing a new inventory system in the next fiscal year, and that implementing the new system would reduce revenue significantly. The Commission alleges that before Fruchtenbaum traded on December 21, 1998, he met with the Company's CEO and General Counsel, who both told him he should not trade at that time. Despite the disapproval of the General Counsel and the CEO, however, Fruchtenbaum went through with his plans. On December 21, 1998, Fruchtenbaum exercised all his then exercisable options to purchase 30,000 shares of American Greetings common stock at prices ranging from $19.25 to $29.50 per share. He then immediately sold the resulting shares for prices ranging from $40.00 to $41.63 per share. Of the shares Fruchtenbaum traded on December 21, 1998, 4,500 were Class A shares which he sold in the open market, and 35,500 were Class B shares which he sold back to the Company itself.

The Commission charges that Fruchtenbaum engaged in manipulative and deceptive conduct in that he did not inform the CEO or General Counsel that he was proceeding with the trades despite their disapproval; he did not inform the American Greetings employees who processed the trades that the CEO and General Counsel had disapproved of his trades; and he did not publicly disclose his material, nonpublic information about the Company's financial condition before he sold his Class A shares to the public.

According to the Commission's complaint, American Greetings announced on February 24, 1999 that it was implementing the new inventory system and that it projected a $100 million revenue shortfall for its upcoming fiscal year. The day of the announcement, the price of American Greetings stock fell 32% from $35.06 to $23.875. By exercising all his exercisable options and selling the resulting 30,000 shares before the public announcement, Fruchtenbaum earned approximately $490,625 more than he would have earned had he waited until after the announcement.

Based on the foregoing, the Commission's complaint charges that Fruchtenbaum violated Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks the entry of a permanent injunction against Fruchtenbaum, the entry of an order barring Fruchtenbaum from serving as an officer or director of any reporting company, as well as disgorgement of his ill-gotten gains, plus prejudgment interest, and a civil penalty.

SEC Complaint in this matter.