<http://www.latimes.com/business/la-fi-capital14oct14,1,3529751.story>
Case May Give View of Capital Group The investment firm, which has long shunned publicity, seeks to partly cloak a divorce trial. By Tom Petruno Times Staff Writer October 14, 2005 A divorce case is threatening to reveal financial details of Capital Group Cos., the $1-trillion-asset Los Angeles money management firm that has long kept its internal business affairs closely guarded. The privately held company plans to ask a Superior Court judge to restrict public access to certain documents and testimony in the divorce trial of Capital executive Timothy Armour and Nina Ritter, according to Ritter and others familiar with the case. Trial is set to begin Monday. Capital's outside counsel, Latham & Watkins, informed Ritter's attorneys this week that it planned to file a petition today with Judge John Sandoz in Los Angeles seeking to cloak certain proceedings, Ritter and others said. A Capital Group attorney declined to comment Thursday. Latham & Watkins attorneys could not be reached. A business request for the restriction of information in a divorce case is rare and raises constitutional issues, experts say. "It's unusual for any third party to become involved in an attempt to close proceedings," said Kelli Sager, a 1st Amendment attorney with Davis Wright Tremaine in Los Angeles. Capital, one of the nation's most successful money managers and parent of the popular American Funds mutual fund group, has long disdained publicity about its inner workings. The company is known for its close-knit corporate culture and for its relative secrecy about its operations. And as a private firm — with only about 300 shareholders, most of them company officers — Capital isn't required to publish data on its income or to say how much it pays its executives. In the divorce case, which Armour initiated in 2003, Ritter is laying claim to half of the 50,000 Capital shares she and Armour hold in a family trust they created in 1991. The stock is potentially worth tens of millions of dollars, Ritter says, but Capital doesn't publicly discuss the value of its shares. Ritter, 45, said she wanted all of the stock to remain in the trust after the divorce, but with a guarantee of her claim on half of any proceeds from the sale of the shares, along with half of any cash dividends Capital pays on the shares in the meantime. Her claim is based on California's community property law. Under Capital's bylaws, however, the company doesn't allow nonemployees to own stock without specific permission. In a suit Capital filed in 2004 in Delaware Chancery Court, the nation's premier business court, the company sought to deny Ritter's ability to keep a claim on half of the trust's stock once she and Armour were divorced. The court ruled in Capital's favor in March. In an interview with The Times, Ritter said Capital "has indicated that they want to redeem my portion of the stock" as part of the divorce. But she said she didn't want to sell because she believed the shares would only become much more valuable over time if Capital continued to grow and Armour, 45, remained an executive at the firm. "There is great value in just holding the stock," Ritter said. She estimated that the value of the stake was growing by 12% a year. "There is no way I could make that kind of return in the market," Ritter said. Capital doesn't reveal the value of its shares or the growth rate of the stock. The company sets the price that partners pay for the shares and the price they get when they sell. Those kinds of details could be revealed in exhibits presented during the trial or in testimony of Capital executives who may be called as witnesses. A list of exhibits in the case includes Capital's stock agreements with partners, share price schedules and a summary of shareholders' stakes. "That's what the trial is about: the real value of the stock," Ritter said. She said she was opposed to having the trial closed to the public. "For me this is a matter of principle," she said. "I just want them [Capital] to be part of the public domain" in the case. In the Delaware court case, Capital said Armour and Ritter had previously agreed to restrictions on the stock held in the trust — specifically, that ownership could not be assigned to someone who wasn't a Capital employee. Ritter contended that she didn't understand that she would surrender her rights to the stock in the event of a divorce. But the court found that Ritter had "signed numerous documents restricting any rights or interests she has in the stock," and said she could not "now disclaim the reasonableness of these restrictions." Armour's attorneys could not be reached for comment. The divorce case is adding to Capital's legal skirmishes this year. The company is battling California Atty. Gen. Bill Lockyer and brokerage regulator NASD, formerly the National Assn. of Securities Dealers, over their allegations that its mutual fund operations violated conflict-of-interest regulations regarding the funds' relationships with brokerages that sell the funds. Capital has denied that it has violated any rules. The Securities and Exchange Commission this year told Capital that the SEC too might bring a case against it.
