A law firm representing institutional shareholders which own a piece of Sinclair Broadcast Group is preparing to sue the company for mismanagement and possible insider trading. The plans to air "Stolen Honor: Wounds That Never Heal" precipitate the action, and the law firm's investigation into it led to the discovery of the possible insider trading activity.

Lerach Coughlin Stoia Geller Rudman Robbins LLP attorneys William S. Lerach and Patrick Daniels are leading the team pressing charges. They are working on behalf and at the behest of institutional investor 1199 SEIU Greater New York Pension Fund and other unnamed investor groups.

The investors were alarmed at the drop in Sinclair's stock price, and were particularly concerned that the group's management was putting its personal political agenda ahead of its fiduciary responsibility to its shareholders.

Lerach said that in investigating this concern, it found that high level Sinclair executives had sold large blocks of stock suspiciously close to a drop in the stock's value. Between December 2003 and April 2004, Frederick G. Smith sold 75K stocks for 1.0725M dollars; J.Duncan Smith sold 299.8K shares for 4.346M dollars, and Robert E. Smith sold 987.9K shares for 13.2M dollars.

The lawyers claim that the personal stock sales of Robert and Duncan represented almost their entire stake in the company, and the shares of all three execs pulled in between 13 dollars and 15.50 dollars. Then the company announced a downward revision on its Q3 2004 earnings, followed by a plunge in stock value to below eight dollars.

Addressing the "SH:WTNH" issue, Lerach said that a public company was supposed to operate with its investors in mind, and that the political views of the controllers should not impact business decisions. He mentioned the firing of Sinclair Washington bureau chief Jon Leiberman, apparently for questioning the company's decision to air the documentary publicly.

The lawsuit is intended to disgorge insider trading profits back into company coffers, and recoup legal fees to defend government battle and fines, loss do to advertiser boycott, and other loss tied to mismanagement and person political agendas.

In a letter to Sinclair President/CEO David D. Smith, Lerach wrote, "Our clients are more interested in the success of the Company than they are in the political views of Sinclair's executives or Board of Directors, and we are extremely concerned at the firestorm Sinclair has ignited - - especially the boycott of Sinclair advertisers as indicated at www.boycottsbg.com and www.stopsinclair.org. Since announcing the intention to insert the private views of Sinclair executives into a contentious political race, Wachovia and Bear Stearns have downgraded the stock and the share price has [plummeted an additional 20% to languish under 6.50 per share. Surely, this is not in the shareholders' best interests and this reckless use of Company assets - - air time - - should be abandoned to prevent further harm to Sinclair's reputation and its advertisers."

Lerach said standard operating procedure is to request that the SBG board investigate itself. If it refuses - - also a likely S.O.P. - - a suit will most likely be filed against the board in a state-level court in Maryland, New York or the District of Columbia.

RBR observation:
The lawyers need to take a look at the proxy for Sinclair's 2004 annual shareholders meeting. All four Smith brothers still hold huge stakes of Sinclair stock and options, millions of shares each, so Robert and Duncan didn't even come close to cashing out. In all, the four control over 96% of the company's super voting Class B stock and nearly 85% of total voting power. If they'd known that the stock was going to tank, it seems that they would have sold a lot more shares. That still leaves open the claim that airing the documentary, which is clearly costing Sinclair ad dollars and driving down its stock price, is mismanagement which damages shareholders to advance the Smiths' political agenda.