NEW YORK, SEPT. 15 -- A former Wall Street lawyer convicted by a jury last month on 38 counts of insider stock trading was sentenced today to two years in prison and fined $25,000.

Israel G. Grossman, 34, had been convicted of illegally tipping a group of relatives and friends about a 1986 recapitalization plan at Colt Industries Inc. Grossman learned about the stock buyback plan, which caused the price of Colt shares to rise sharply, while working as an associate at the New York law firm of Kramer, Levin, Nessen, Kamin & Frankel.

By trading in Colt stock options in advance of the recapitalization announcement, the Grossman group improperly earned more than $1.4 million on an investment of about $34,000. "You made a killing and it ended up killing you," U.S. District Judge Richard Owen told Grossman.

Grossman sat impassively in a federal courtroom here today as Owen pronounced the sentence.

The sentence was lighter than attorneys involved in the case had expected. Owen has a reputation for meting out exceptionally tough sentences; after being convicted on all counts, Grossman faced a maximum of 190 years in prison.

Some legal observers said the two-year sentence handed to Grossman may discourage other Wall Street professionals accused of insider trading from cooperating with the government. Grossman was the first insider defendant to contest his case at trial since the arrest of former investment banker Dennis B. Levine in May 1986. Yet Grossman's two-year sentence was comparable to prison terms received by other defendants, including Levine, who cooperated with investigators by pleading guilty and identifying other securities law violators.

The longest sentence ever rendered in an insider stock trading case was the four-year prison term given to former deputy defense secretary Paul Thayer.

"Obviously, the family situation played a very large role" in Owen's decision, said Howard Wilson, chief of the Manhattan U.S. Attorney's criminal division who was lead prosecutor in the case.

Grossman has five children. Letters and other documents submitted to Owen as part of the sentencing process indicated that the children had already been emotionally affected by Grossman's imprisonment and that the family would soon have to go on welfare.

Grossman's attorney, Irving Seidman, emphasized to Owen that his client had no connection to Levine, former stock speculator Ivan F. Boesky, and other convicted Wall Street figures who operated at the heart of the country's financial system.

"This is not a case that impacts on the marketplace," Seidman said. "In essence, this is a case of self-destruction."

Grossman has been held in jail since his conviction on Aug. 19 because Owen ruled that there was a substantial danger that he would flee the country. Three of Grossman's relatives and friends implicated in the case have already fled to Israel, Wilson said at today's hearing.

While none of the relatives and friends has yet been charged criminally, all are named in a related lawsuit brought by the Securities and Exchange Commission that seeks to recover the Grossman ring's illegal profits, plus penalties. They are also the subject of a criminal probe