A continuing grand jury investigation of alleged illegal insider stock trading by current and former officials of Goldman, Sachs & Co. and Kidder, Peabody & Co. has run into unexpected difficulty in the case of suspended Kidder trader Richard B. Wigton, sources familiar with the probe said yesterday.
While government investigators have said recently they expect to be able to mount a strong case against Goldman partner Robert M. Freeman and former Kidder trader Timothy L. Tabor, sources familiar with the probe said the case against Wigton appears to be qualitatively weaker. The three men were arrested last February and charged with participating in a scheme to make illegal insider stock trading profits by swapping confidential information about corporate takeovers.
The arrests and later indictments were based largely on the testimony of former Kidder merger specialist Martin A. Siegel, who pleaded guilty last February to insider trading and related charges. On June 4, Kidder settled civil charges that the firm made illegal insider trading profits as part of the scheme involving Goldman.
Neither Freeman, Wigton nor Tabor currently faces any criminal charges. On May 19, the government won more time to pursue its investigation of the men when a federal judge granted a motion to dismiss pending charges.
At the time, Manhattan U.S. Attorney Rudolph W. Giuliani said his office intended to pursue a broadened investigation of alleged illegal trading involving the men that would lead to new charges. Assistant U.S. Attorney Neil A. Cartusciello said the initial charges against Freeman, Wigton and Tabor, which involved illegal trading in only two stocks, were merely "the tip of an iceberg."
The government's promise to seek new charges against the men has left them in a state of legal limbo, and Giuliani has refused on numerous occasions to indicate how long it may take to put together a new case. However, last week Giuliani said that he does not expect major criminal actions against Wall Street figures before the fall.
Until recently, the government viewed the case against Freeman, Wigton and Tabor as a single conspiracy. But evidence being developed in the grand jury probe is qualitatively different in Wigton's case, sources familiar with the investigation said. While Freeman traded heavily and successfully for his own account and for Goldman in the stocks of takeover targets, sources familiar with the investigation said that Wigton's personal trading records showed losses on a number of deals and did not seem to indicate that he was using inside information about upcoming takeover events.
Another obstacle the government faces, sources familiar with the case said, is that conversations between Siegel and Freeman, during which the pair allegedly passed inside information, were characterized by the use of hints and coded language, rather than explicit exchanges of information. Sources familiar with the probe said the nature of such conversations may make it difficult to convince a jury that anything illegal took place.
Freeman, Wigton and Tabor repeatedly have asserted their innocence. Sources familiar with the probe said that Tabor did not trade heavily in his personal account during the time he allegedly participated in the conspiracy.
In a related development, however, The American Lawyer reports in its July/August issue that the government has evidence about systematic overcharging by Kidder's over-the-counter stock trading desk, which Wigton headed. The article reports that Giuliani told Kidder officials about this evidence during negotiations earlier this year.
Meanwhile, the Securities and Exchange Commission's probe of the Wall Street firm Drexel Burnham Lambert Inc. is continuing and has prompted Drexel to step up its own internal inquiry of deals the firm has been involved in recently. Last month Drexel asked its employes to provide fresh information concerning about 100 companies involved in corporate takeovers and other transactions. The request was accompanied by renewed internal questioning of Drexel officials and the presentation of a special videotape instructing employes on how to comply with requests for information. Drexel Chief Executive Officer Fred Joseph has said repeatedly he knows of no wrongdoing by anyone at the firm.