Former owner of St. Louis Blues charged with securities fraud

Friday, July 20, 2007

ST. LOUIS (AP) -- Former St. Louis Blues owner Michael Shanahan Sr. and his son turned themselves in to federal authorities Friday, a day after both were charged in a federal indictment with securities fraud.

"I'm kind of still in shock," Shanahan told reporters after emerging from a white sport utility vehicle, according to STLtoday.com, the Web site for the St. Louis Post-Dispatch. "We never intentionally did anything wrong."

"This is new to me," he said. "We're just going to stand and fight it as best as we can fight it."

Shanahan and his son, Michael Shanahan Jr., both face 12 counts of securities violations, fraud and conspiracy. Shanahan Sr. was the former chief executive officer of the defense contractor Engineered Support Systems; his son was a member of the board of directors.

Also charged is Gary Gerhardt, former chief financial officer at Engineered Support, a suburban St. Louis-based company acquired by DRS Technologies Inc. in 2006.

Federal regulators accuse the men of backdating stock options between 1996 and 2002 in a scheme they claim enriched executives and board members by nearly $20 million.

Assistant U.S. Attorney Michael Reap said the men were able to "place their bets before the race" by retroactively choosing option grant dates that coincided with low points in the company's stock. That allowed them to make greater profits when they exercised the options, according to the indictment.

Reap said Shanahan Sr. received about $7.8 million in illegal proceeds, his son got $80,000 and Gerhardt got $1.8 million.

Attorneys for Gerhardt, who first was charged in March, said auditors for the company knew of the stock trading practices and that it was not considered illegal.

The Securities and Exchange Commission filed a civil suit against the Shanahans last week. Attorneys for the Shanahans say they will use a defense similar to that of Gerhardt.

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