2 Insider-Trading Defendants Take the Stand : Trial: A stockbroker and a printing company employee in one of the cases involving advance information from Business Week testify that they did not think their actions were illegal.

The first two men to stand trial in the nationwide Business Week insider trading scandal took the stand Monday in U.S. District Court in Los Angeles, each claiming that he was completely unaware that what he had done was illegal.

The Securities and Exchange Commission has charged in a civil insider trading lawsuit that Brian J. Callahan, a former broker in the Anaheim office of Prudential-Bache Securities, and William N. Jackson, a former quality control analyst at a Torrance printing plant, obtained early copies of Business Week and bought stock based on recommendations in the magazine’s “Inside Wall Street” column.

The SEC charges that Callahan, 30, of Anaheim and several brokerage clients made illegal profits of $19,684 and that Jackson and two of his brothers made illegal profits of $19,506. Jackson and Callahan, however, are the only two defendants in the suit, which is seeking to recover damages equal to three times the amount of the profits the two men made.

The case is one of several around the country in which the SEC is alleging that individuals made illicit trades using advance information from a Business Week stock column. This is the first of the cases, which appear to be unrelated, to go to trial.

Jackson, 34, of Long Beach testified Monday that he did pick up a copy of Business Week at his employer--printer R.R. Donnelley & Sons--about 2 a.m. on Thursdays between September, 1987, and July, 1988. Jackson said he then read the magazine, including the “Inside Wall Street” column and then would place orders through Callahan several hours later, after the stock markets opened in New York.

“I traded Business Week stocks to try and make money,” Jackson testified. “Nobody said it was illegal.”

SEC attorneys then showed Jackson a copy of a confidentiality agreement that he had signed which forbids Donnelley employees from trading on information gleaned from the company’s financial printing business. Donnelley had posted numerous warnings about insider trading to employees around its plant, the SEC said.

Jackson said he never saw those posters. He also said he did not think Business Week was considered financial printing because Donnelley did not take the kind of extra security precautions such as cordoning off certain areas that it did with annual reports or proxy statements.

He further testified that he noticed that the prices of stocks in the magazine’s column often went up on Thursdays when he was buying the stock, so he assumed that the recommendations he was following were public knowledge and not inside information.

“I was sure it had reached the public because the stock prices went up at least $1 in some cases,” Jackson said. “It was clearly legal.”

Callahan testified that he thought that Jackson was getting the recommendations from a computer program. Callahan said he did not know where Jackson worked until just a few weeks before the SEC began questioning him in the summer of 1988.

“The stockbroker is first and foremost an order taker,” Callahan told the jury.

But Jackson and a mutual friend who introduced the two both testified that they had told Callahan about Donnelley and the early copies of Business Week. Callahan said they were “lying.”

The SEC produced a Prudential-Bache new-account form that falsely states that Jackson, rather than working for Donnelley, was employed by Crucible Steel. Callahan said Jackson told him that; Jackson said Callahan wrote that on the form.

Jeffrey Kon, a Prudential-Bache broker and former colleague of Callahan, testified Monday that he went to Prudential-Bache’s management after he noticed that Callahan’s stock tips were often the same ones that appeared later in Business Week.

Callahan, however, testified that he was the individual who notified his supervisor and that he did so after Jackson told him where he was getting his information. Callahan was dismissed by Prudential-Bache in August, 1988.

Callahan is a prominent Orange County figure. In the mid-’80s, he contributed a weekly “Hot Trades” stock summary to the Orange County Register. He has been fascinated with the stock market since age 11, when his father got him started with eight shares of Walt Disney Co. He attended Servite High School, a Catholic boys school in Anaheim, and was graduated from UC Riverside, where he started an investment club. He and Jackson met in 1985 at the graduation ceremony of a mutual friend in Long Beach.