Conviction Upheld in PDA Insider-Trading Case

The insider-trading conviction of a former Costa Mesa company executive was upheld Tuesday by a federal appeals court that rejected his claim that an illegally intercepted voicemail message tainted the case.

A three-judge panel of the U.S. 9th Circuit Court of Appeals found no error in the Los Angeles federal court conviction of Richard J. Smith, former vice president at PDA Engineering, a Costa Mesa-based software design firm.

Smith had left an incriminating message for a fellow employee that said: “I’m going to short the stock because I know it’s going to go down a couple of points here in the next week as soon as Lou releases the information about next year’s earnings.”

The case was closely watched in part because of the intercepted voicemail issue.

Chiquita Brands International Inc. is under Securities and Exchange Commission investigation triggered by the work of a now-fired newspaper reporter who is accused of improperly gaining access to company voicemail.

Michael Gallagher’s Cincinnati Enquirer articles were also based on interviews and documents, and Tuesday’s ruling will give the SEC a boost if it needs to argue that the voicemail did not taint its entire case.

A third employee at PDA, which has since been bought by MacNeal-Schwendler Corp. of Los Angeles, managed to retrieve and record the message. She told another executive, who informed authorities.

The appeals court in San Francisco found that the trial judge correctly excluded the recorded message itself from evidence, rejecting Smith’s contention that everything SEC probers found--even before they received the tape--should have been thrown out.