WASHINGTON SUES HMO EXECUTIVES FOR INSIDER TRADING; FRIENDS TIPPED, REGULATORS SAY.

Byline: Neil Roland and Brooke Herlihy Bloomberg News

Century MediCorp Inc.'s former top executive and a former board member tipped off friends about confidential merger negotiations between the company and Foundation Health Corp., the Securities and Exchange Commission claims.

Century, a Los Angeles-based operator of health maintenance organizations, was acquired by rival Foundation Health, a Rancho Cordova-based HMO operator, for about $156 million in late 1992. Foundation Health merged with Health Systems International Inc. earlier this year to form Woodland Hills-based Foundation Health Systems Inc.

The SEC suit claims Jacob Y. Terner, who was Century's chairman and chief executive, and board member Theodore W. Dutton illegally tipped friends about the negotiations. The friends and two others who also were tipped then illegally netted a total of $369,000 by trading Century stock, the complaint contends. The suit was filed in federal court in Los Angeles.

Terner agreed to settle the charges, without admitting or denying them, by paying a $225,750 penalty, which equals the profit made by his friend, Nissan Kahen.

``No one has accused Mr. Terner of taking any personal advantage of any information,'' said Terner's attorney, Andy Weissman of Wilmer, Cutler & Pickering in Washington.

Dutton, a real estate developer, is contesting the SEC suit, which seeks fines and refunds from Dutton and the friend he is claimed to have tipped, George Voigt.

``Mr. Dutton is innocent of the charges,'' said his attorney, Aulana Peters of Gibson, Dunn & Crutcher in Los Angeles. ``He knows he did not violate the securities laws.''

Of the six charged, only Terner and Dutton, reported to be the original sources, did not profit from trades on the inside information, according to the SEC.

The case is one of an increasing number brought by the SEC for inside trading. The number of inside-trading investigations soared to 339 last year, the most in at least a decade, as the rate of corporate mergers and acquisitions dramatically increased.

Terner's friend Kahen agreed to settle the charges against them, without admitting or denying them, by paying a total of $491,500 in fines and restitution. His lawyer didn't respond to a request for comment.

``These are substantial settlements,'' said Karen Matteson, SEC senior trial counsel in Los Angeles, referring to Terner's and Kahen's settlements.

Kahen, after receiving the tip, passed along the information to his brother, Parviz Kahen, who illegally garnered $40,000 by trading Century stock, the SEC claimed. Parviz Kahen agreed to settle the charges by refunding the $40,000, but because of financial need was required to pay only $27,000. He neither admitted nor denied the charges.

Voigt, who is contesting the suit, netted $87,500 by illegally trading Century stock, the SEC claimed. His attorney did not respond to a request for comment.

Andrea Guillen Dutton, Dutton's daughter-in-law, made $16,000 by trading Century stock. The SEC didn't identify who it believes tipped her off. She agreed to settle the charges, without admitting or denying them, by paying a total of $32,000 in fines and restitution.

Peters, who represents Andrea Dutton, declined comment about her case. Lawyers representing the Kahens and Voigt did not respond to requests for comment.

Century MediCorp, which netted $6.7 million on $170.3 million in revenue in the fiscal year ended June 1992, was acquired for about 5 million shares of Foundation stock.

Foundation Health, after acquiring Century, in turn merged with Health Systems International Inc. this past April for $1.34 billion. The combined company, Woodland Hills-based Foundation Health Systems Inc., has a market capitalization of $3.28 billion. Its stock closed unchanged at 30-7/8 Thursday.