Israeli businessman David Sofer, who was named last March in a multimillion-dollar insider trading case brought by the Securities and Exchange Commission, has reached an agreement with federal investigators in which he will pay back all illegal profits without penalties, sources said yesterday.
The sources also said Sofer was cooperating with federal officials in the investigation of former Merrill Lynch & Co. executive Nahum Vaskevitch, once the top merger specialist in the firm's London office.
Vaskevitch and Sofer were charged last spring by the SEC with making about $4 million in illegal stock-trading profits. Sofer's cooperation was expected to strengthen the government's case against Vaskevitch.
Information provided by Sofer may also boost other investigations by the Manhattan U.S. attorney's office and the SEC, the sources said. One source familiar with the agreement said Sofer was valuable as a cooperating witness because he can provide firsthand testimony about alleged wrongdoing by Vaskevitch and also may "give you people who can give you other people."
Sofer, a part owner of the Jerusalem Hilton Hotel, allegedly traded stocks on the basis of confidential information leaked to him by Vaskevitch. He has received complete immunity from criminal prosecution in return for his cooperation, sources said.
In addition, Sofer has agreed to settle related SEC charges by giving up more than $1 million in illegal stock-trading profits.
Sofer will not be required to pay the government a monetary penalty. Under the Insider Trading Sanctions Act, individuals can be fined up to three times the value of their illegal trading profits. However, collection of such penalties from foreigners is difficult.
The plea agreement leaves Sofer completely free to conduct business and travel in the United States without fear of criminal prosecution on insider-trading charges, sources said.
Stanley Arkin, Sofer's attorney, declined to comment on his negotiations with the government, as did SEC officials. Manhattan U.S Attorney Rudolph W. Giuliani could not be reached, and his office declined comment.
Sofer's cooperation gives government prosecutors direct evidence in the case against Vaskevitch, who was the founder and head of Merrill's merger department in London. Vaskevitch, who has refused to appear in U.S. court to answer charges against him, was a well-known investment banker in London who had access to confidential information about upcoming corporate takeovers because he helped to arrange the deals.
According to the SEC, Vaskevitch violated securities laws by passing information about corporate takeovers to Sofer, who directed trading in a dozen stocks through accounts at Russo Securities Inc. and MKI Securities Inc. in New York. The stocks included Herman's Sporting Goods, Union Carbide Corp. and Hammermill Paper Co., the SEC said.
Vaskevitch's attorney yesterday declined to comment on the charges.
When officials at Russo and MKI were subpoenaed for testimony by the SEC earlier this year, some of them asserted their right to protection against self-incrimination under the Fifth Amendment, according to documents filed in New York federal court by the government.
The SEC investigation was launched about a year ago after New York Stock Exchange officials passed along evidence of suspicious trading in stocks of companies involved in corporate takeovers. The NYSE has a computer system that tracks unusual stock volume and price movements to aid in detecting illegal activity.
The case is not related to federal investigations of Wall Street corruption stemming from guilty pleas by former investment banker Dennis B. Levine and former stock speculator Ivan F. Boesky.
However, the agreement reached with Sofer does follow the pattern of earlier probes in which cooperating witnesses have been used by the government to quickly extend the reach of its investigations.
The SEC probe of Sofer and Vaskevitch has not been limited to investigations of those two men. SEC papers also mention the Russo and MKI officials and two of Sofer's U.S. business associates, Michael Jesselson and Louis Barnett, who allegedly participated in a "profit sharing" arrangement with Sofer and traded stocks of takeover targets based on his advice.
However, these men -- along with Swiss executive Michael Floersheim, also mentioned in the SEC papers -- have not been charged with any wrongdoing.
Jesselson's attorney, Robert McCaw, said yesterday that his client does not expect to be charged with any wrongdoing.
"We have represented Jesselson for some time," said McCaw, a lawyer with Wilmer, Cutler & Pickering, and "he has responded fully to all of the inquiries made of him in connection with the Vaskevitch-Sofer matter. If it is true that Sofer is cooperating with the government, and if he is being truthful, we don't think there is any basis for Michael to be concerned."
Neither Barnett nor his attorney, Gary Naftalis, could be reached for comment. Barnett has previously denied any wrongdoing.
Government papers filed in federal court in connection with the case indicate that Barnett and one of his relatives were scheduled for depositions before the SEC last May.
Subpoenas issued in connection with those investigations sought telephone and financial records as well as all correspondence between Barnett, Sofer, Vaskevitch and Floersheim.
Also scheduled for testimony in the case last spring was Jerome Stern, a New York resident. Stern did not respond to messages seeking comment.
One of the key elements in evaluating the deal that government prosecutors have made with Sofer will be the quality of information he can provide about Vaskevitch and possibly others, sources familiar with the case said.
Until the full extent of Sofer's cooperation is disclosed, it is unfair to judge the plea deal, according to Ira Lee Sorkin, the former head of the SEC's New York office.
But other lawyers said it appears to be a good deal for Sofer. How good the deal is for the government hinges on future cases.
"It is impossible to put a value on it," Sorkin said. "It is unfair to criticize any of the deals until you see what the government gets out of it."