Dennis B. Levine, the Wall Street investment banker accused of making $12.6 million in illegal profits by trading stocks on insider information, was released from jail yesterday on $5 million bail after he posted collateral worth approximately $1 million.

Levine, a managing director of Drexel Burnham Lambert Inc. described by colleagues as a rising star in Wall Street's investment banking community, had been jailed overnight after he turned himself in to the U.S. Attorney's Office Monday night. Levine, 33, was charged with obstruction of justice for allegedly interfering with an investigation of him by the Securities and Exchange Commission.

According to the SEC, Levine amassed a fortune over more than five years by illegally using confidential information about pending mergers to buy and sell stocks, a violation of federal securities laws. His jobs made Levine privy to information about a number of major corporate mergers. Levine worked for Drexel Burnham, as well as Smith Barney Harris Upham & Co. and Lehman Bros. Kuhn Loeb Inc., which became part of Shearson Lehman/American Express during the period.

Levine, wearing a dark blue suit, a white shirt and a yellow tie and accompanied by his wife, appeared before U.S. Magistrate Kathleen A. Roberts in U.S. District Court in New York yesterday.

The collateral for Levine's bail included $100,000 in cash, his ownership interest -- worth approximately $500,000 -- in a Park Avenue cooperative apartment, the furniture in his apartment and 2,200 shares in Drexel Burnham.

A preliminary hearing was set for June 3 on the obstruction of justice charge, which carries a maximum sentence of five years' imprisonment and $250,000 in fines. Levine also faces penalties in connection with the SEC's civil complaint.

In the SEC civil action for insider trading, Levine could be ordered to return all of the more than $12 million he allegedly made in illegal profits. He also could be forced to pay three times the more than $6 million in profits that the SEC says he earned illegally after Aug. 10, 1984, when the law was changed to allow treble damages.

According to U.S. Attorney Rudolph Giuliani and Assistant U.S. Attorney Charles M. Carberry, Levine attempted to thwart the SEC investigation. He allegedly ordered a financial institution in the Bahamas that handled his investments to destroy records that would have revealed Levine's identity and instructed employes of the institution to lie.

Papers filed by the SEC Monday when the agency asked a federal judge to freeze Levine's assets and to enjoin him from destroying records provided details about the alleged cover-up. The agency said Levine ordered the financial institution to remove copies of his passport and a card bearing his signature from its files and destroy them. He also sent an "opinion letter" to the institution prepared by a Bahamian lawyer threatening to sue if the SEC was provided with his identity or details about his account.

Colleagues of Levine described him as aggressive and likeable -- a good deal maker who had risen fast and who probably earned more than $1 million last year from Drexel.

A graduate of Bayside High School in Queens, Levine received a bachelor's degree and a masters in business administration from Baruch College, which is part of City University in New York.

He joined Smith Barney in April 1978 and spent a year in Paris with the firm before he left in November 1981 for Lehman Bros.

In contrast to officials at Smith Barney and Drexel Burnham, who said they learned of the allegations against Levine only on Monday, Shearson/Lehman officials said the firm knew about the investigation and had cooperated in it. Senior Executive Vice President David Hershberg said the SEC "had come to us a while ago and told us they were doing an investigation, and we started cooperating." Officials of the three firms said that they have controls aimed at preventing the abuse of insider information, but that they provide scant protection from someone determined to abuse the system. "We have extremely stringent policies about people who trade for their own account," said Bob Connor, a spokesman for Smith Barney.

Investment banking firms try to erect a wall between the trading side of their operations and the investment banking side, where strategies are developed for clients pursuing or defending against mergers.

"We have communiques and statements of policies regarding insider information that are well-distributed," said Connor. "But in the end, our only hope is that the people we hire have honesty and integrity."

David G. Kay, co-head of the mergers and acquisition department at Drexel, said that the company does extensive background checks of its employes and keeps information restricted to only those employes who absolutely need to know it, protecting it with code names for projects and by safeguarding word-processing operations where such data is handled. Levine, however, was part of a cadre of high-level officials of the firm who generally have access to sensitive information.

"Even if someone were not in a position to come by the information in the course of his job, if a guy really was determined enough, there are probably ways that he could pierce any sort of controls that one might mount," said Kay.

The most sensitive jobs, such as Levine's, require the most intensive screening, including questions aimed at revealing whether an applicant might be under investigation or in other legal trouble, Kay said.

"I hired Dennis," said Kay. "It was a hiring that extended over many months." Kay said that Levine "has performed as a first-rate mergers and acquisition person. He did his assignments exquisitely. He's very bright, very intelligent, very personable and very able to assert himself in transactions."

"He had real star-quality," said Kay. "He has real star-quality." Special correspondent John Kennedy contributed to this report.