Alfred Teo, who owns giant plastic bag and film maker Sigma Plastics Group, pleaded guilty June 27 to five counts of securities fraud for insider trading in two companies, during his trial in U.S. District Court in Newark, N.J.
Teo faces up to 50 years in prison - 10 years on each of the counts - but under a plea bargain, the term is likely to be 30-37 months, according to Assistant U.S. Attorney John Vazquez, one of the prosecutors.
Teo, 60, had maintained his innocence at the jury trial in federal court, which began May 16. The trial ended when he pleaded guilty.
Teo pleaded guilty to three fraud counts in connection with Musicland Stores Corp., where he was the largest shareholder, and two fraud counts involving insider trading when he was a director of Cirrus Logic Inc.
The U.S. Department of Justice said Teo's stock trades, and those of people he tipped off about the inside information, generated $1.8 million in profit.
Before the trial was halted, the jury had been hearing evidence on about 25 counts against Teo - including charges that Teo concealed his true level of ownership in Musicland, to avoid the risk of triggering the company's ``poison pill'' provision. Federal authorities contended that Teo pocketed an illicit profit of about $22 million when he later sold the shares.
Teo lawyer John Farmer Jr. said those charges will be dropped in the plea bargain. Defense lawyers did not think the state would be able to prove the stock-ownership allegations, Farmer said.
``From our point of view, the most serious charges were taken off the table. That's why this was such an attractive deal. And [Teo] took responsibility for what he did,'' he said.
Since the insider-trading charges surfaced two years ago, Teo has stressed that the legal trouble involves his personal investments and has nothing to do with Sigma Plastics. He continues to maintain that position.
``This has nothing to do with my company. The company will be carried forward by my four sons and all the divisional managers and the people I have in place,'' Teo said by telephone June 28, the day after his guilty plea.
He said Sigma is financially solid.
Lyndhurst, N.J.-based Sigma generated $1.05 billion in 2004 sales and employs about 4,500 people, making it the sixth-largest film and sheet manufacturer in North America, according to Plastics News data. Sigma is the largest plastic bag producer in North America.
Teo started Sigma in 1979 and runs the company as chairman and chief executive officer. Since he was indicted, Teo has continued to expand the privately held company aggressively, buying Republic Bag Inc. and Mid-Atlantic Bag Inc. in 2004, and buying and selling several other plants.
In a June 27 letter Teo wrote to business associates, the plastic bag magnate said he is prepared to go to prison.
``I am hoping that I will receive the minimum sentence from the judge and be able to return to the company in the very near future after serving my time in a minimum-security prison starting at the end of this year. After I have served my time, I will be back to lead the company that I spent 30 years building,'' he wrote.
U.S. District Judge Katharine Hayden set a sentencing date of Oct. 23.
Teo's lawyers, Farmer and John Azzarello, want to put the insider trading into perspective.
``Did he make a terrible mistake? Absolutely, and he's taking responsibility for it. But what he ended up pleading guilty to was a relatively minor aspect of what he was originally charged with and an even smaller part of his life,'' Farmer said.
At the sentencing, they will tell Teo's life story, how he was born in Singapore and raised in China, then came to New York at the age of 20.
``It's a remarkable story. He came to this country with $70 to his name and didn't speak a word of English. He worked multiple jobs and put himself through college, and has worked 100 hours a week for decades to make himself a real American success story,'' Farmer said.
In the business letter, Teo announced that his son Mark will take over as Sigma's president and CEO. His three other sons, Alan Teo, Alfred Teo Jr. and Andrew Teo, also will be promoted to top posts: Alan will be executive vice president; Alfred Jr. will be vice president of purchasing; and Andrew will get more responsibilities in the financial area, including his role as chief financial officer of several sister companies.
Under charges filed against Teo and several other defendants in 2004, Teo was accused of engaging in insider trading in 2000, when he bought thousands of shares of Musicland before electronics retailer Best Buy Co. Inc. publicly announced it would buy the music store company.
Teo was charged with buying about 25,000 Musicland shares for himself and another 20,000 shares for his four sons. Farmer said Teo set up the trust as a vehicle for stock trading. ``There were no allegations the sons were involved in this,'' Farmer said.
Teo also allegedly tipped off friends and associates about the pending deal. Teo was the largest shareholder in Musicland, which operated Sam Goody stores throughout the country.
The insider-trading charges did not directly involve Sigma Plastics, although Teo's co-defendant is John Reier, Sigma's CFO. Reier has pleaded guilty to a misdemeanor charge, and prosecutors dropped 16 felony counts of securities fraud against him. Reier hopes to get probation and continue at Sigma Plastics, Farmer said.
The other insider-trading case involved Cirrus Logic, a microchip company. According to federal prosecutors, Teo was on the board of directors of Cirrus when he learned Cirrus was in talks to buy another chip maker, C-Cube Microsystems Inc. Teo then bought stock in C-Cube.
Although the guilty plea ends his federal trial, Teo still faces civil charges filed in a separate case by the Securities and Exchange Commission. The SEC case was postponed when the Justice Department filed its criminal charges.
Gerald Gross, SEC assistant regional director in New York, said the commission's claims still are pending against Teo and the other defendants.
Teo has two high-profile lawyers. Farmer, a former New Jersey attorney general, served on the 9-11 Commission as senior counsel and team leader. He headed a team that investigated the government's response to the terrorist attacks on the United States and studied the current state of preparedness by the public and private sectors.
Azzarello also was a member of the 9-11 Commission.