John Adams

The self-tender offer was made in June 2002 shortly after Hawaiian received $25 million in payments from the federal government to compensate airlines for losses following Sept. 11.

Internal financial data showed that Hawaiian would go from a $12 million operating profit to a $9.3 million operating loss in 2002, the SEC said. But, according to the SEC, Adams and AIP continued to use optimistic financial projections about Hawaiians' performance in discussing the tender offer.

"Adams and AIP made representations that the company would remain solvent," said Marc Fagel, assistant district administrator for the SEC in San Francisco. "The board relied on the projections when it went out with its tender offer. But what happened over the next two months was that the company and Adams had two very bad months financially that were far below the company's internal projections. In our view, that was something the shareholders needed to know in deciding whether to hold on to the stock."

Adams and AIP tendered their shares and received over $17 million of the $25 million that Hawaiian paid for the stock.

Nine months later, Hawaiian filed for federal bankruptcy protection.

In May 2003, U.S. Bankruptcy Judge Robert Faris removed Adams from any management role in Hawaiian and replaced Adams with a bankruptcy trustee. Faris said at the time that Adams had failed to act prudently in carrying out the stock buyback as the company's fortunes dwindled.

Adams cut all financial ties to Hawaiian in June by selling his shares to Ranch Capital LLC and resigning from Hawaiian's parent company, Hawaiian Holdings.

The SEC today charged Adams and AIP with rarely used violations of 13(e)(1) of the SEC Act of 1934 and Rule 13(e)-4(j)(2), which require a public company conducting a self-tender offer to promptly disclose any material changes in the information provided to securities holders.

AIP agreed to give up $2.2 million of the proceeds it received from the tender offer, according to AIP. Adams agreed to give up $3,782.

The settlement with Adams and AIP also orders them to cease and desist from any violations of failing to promptly disclose similar information. But with today's announcement, Fagel said, the SEC considers the case against Adams and AIP closed.

The settlement means that Adams and AIP neither admitted nor denied the SEC's findings.

"We're obviously pleased that the SEC concluded its investigation without finding that Mr. Adams or AIP engaged in any fraudulent behavior and without their admission of any wrongdoing," said Thomas X. Fritsch, attorney for AIP. "We can now take even greater satisfaction from the fact that Hawaiian's shareholders are enjoying a current stock price that is almost $3 more than the tender offer price and the apparent likelihood that Hawaiian's creditors will receive 100 cents on the dollar in the reorganization of the airline."

As part of the settlement, the SEC will not file any claims or seek monetary penalties against Hawaiian. The airline also pledged to comply with tender offer disclosures if it ever makes a public tender offer.

"Our agreement will avoid any potential litigation or claims by the SEC and will help speed Hawaiian's successful exit from bankruptcy," Hawaiian's bankruptcy trustee, Josh Gotbaum, said today.

The U.S. Bankruptcy court is currently considering three competing offers to restructure Hawaiian and take it out of bankruptcy.