Former deputy defense secretary Paul Thayer yesterday pleaded guilty to obstructing justice and giving false testimony to federal investigators about his role in an insider-trading scheme that netted eight of his friends more than $1.5 million in illegal profits.
The charges came 14 months after Thayer resigned as the Pentagon's No. 2 official, saying that the charges were "distorted" and "entirely without merit" and that he would "ultimately be exonerated."
Thayer, 65, acknowledged yesterday that he had provided confidential information to Billy Bob Harris, 45, his Dallas stockbroker, and to Sandra K. Ryno, 39, a woman friend whom he supported financially.
Thayer and Harris were charged with obstructing justice by lying under oath to the Securities and Exchange Commission, which is seeking return of the profits in a civil suit.
The pleas were made in federal court here after U.S. Attorney Joseph E. diGenova filed a criminal information alleging that Thayer illegally disclosed merger plans involving Allied Corp. and Anheuser-Busch Companies Inc. while serving as a director of those companies. He was chairman of LTV Corp. at the time. In one instance, the documents say, Thayer used someone else's credit card to call Harris from a pay telephone and pass on information about Allied's plan to take over another company.
Under an agreement that led to the guilty pleas, prosecutors told U.S. District Court Judge Charles R. Richey that they would not seek the maximum five-year prison sentence but would recommend that Thayer and Harris be incarcerated for some period.
Richey, who set sentencing for April 18, said he would feel free to impose a stiffer sentence. He also warned that he may "order the defendants to make restitution to any victims of the offense."
Thayer did not contest diGenova's charge that in testifying before the SEC in 1983 he "knowingly gave materially false and misleading testimony for the purpose of concealing" the information he passed to Harris. Thayer was deputy defense secretary at the time.
DiGenova also charged that Thayer "improperly disclosed . . . material, nonpublic information" that he knew Harris would use to buy stock for himself and others.
The SEC suit alleges that Thayer's stock tips were shared with a close circle of friends that included Ryno, a former LTV receptionist with whom Thayer "maintained a private personal relationship;" Harris, who once regularly touted stocks on a Dallas television show; Harris' friend, Juli Williams, 27, an aerobic dance instructor; Thayer's physician, Doyle L. Sharp, 52, and his friend, Julia D. Rooker, 37, an airline stewardess.
The SEC also named Thayer's banker, Gayle L. Schroder, 47; insurance executive Malcolm B. Davis, 49, and stockbroker William H. Mathis, 46, a former New York Jets football player.
It is illegal to use or provide nonpublic information for trading seurities. In many such cases, the buyers successfully anticipate that public announcement of a planned merger will boost the stock value of the company being acquired.
Assistant U.S. Attorney Charles H. Roistacher said that although Thayer did not personally trade the stocks, he benefited from Ryno's profits because he had financed her purchases. "Ms. Ryno was using Mr. Thayer as a form of support," he said. "Any profit she made saved Mr. Thayer money . . . . Mr. Thayer was her only source of support." Prosecutors said Ryno is cooperating in the probe.
Another prosecutor, Curt H. Mueller, said the charges do not include an additional $1 million that Thayer's associates earned through advance word of a possible LTV takeover of Grumman Corp.
Roistacher said the inside information from Thayer eventually spread to a "substantial" number of other people who also profited. For example, he said that Harris passed information to Davis, who he said is a convicted bookie and prominent backgammon player, and that Davis passed the tips to other backgammon players. According to court documents, Thayer and Harris repeatedly lied to the SEC about whether they exchanged confidential information on two corporate mergers: Anheuser-Busch's $560 million takeover of Campbell Taggart Inc., a Dallas food conglomerate, and Allied Corp.'s $1.9 billion acquisition of Bendix Corp.
Asked by the SEC whether he had discussed the Campbell Taggart takeover with Harris, Thayer said he told the stockbroker that "I really wasn't in a position to discuss Campbell Taggart with him, but . . . that I didn't think an investment in Campbell Taggart would be a bad investment."
The documents say Thayer began to disclose details of the takeover plan to Harris and Ryno on June 27, 1982, four days after he attended an Anheuser-Busch board meeting where directors discussed acquiring Campbell Taggart.
Beginning on June 30, Harris bought 73,000 shares of Campbell Taggart stock for himself, Ryno and other associates. Harris also passed the information to unnamed individuals who bought at least 172,000 shares.
After the takeover attempt was announced Aug. 3, Harris, Ryno and their associates sold their Campbell Taggart stock at a profit of more than $500,000.
Thayer also told the SEC he did not recall phoning anyone about Allied's plan to take over Bendix. He said he told Harris that he "didn't feel free to talk to him in any detail about Bendix, but that I felt that Bendix was . . . a good stock."
The documents say Thayer told Harris about the Allied plan after learning of it after a company board meeting on Sept. 20, 1982.
At 12:43 p.m. on Sept. 22, on his way to another Allied board meeting to finalize the plan, Thayer called Harris from an airport pay phone and notified him. Nine minutes later, Harris bought 38,200 shares of Bendix stock for himself, Ryno and others at about $60 a share.
That afternoon, Allied ratified the plan, and Bendix announced it. On Sept. 27, Harris, Ryno and their associates sold their Bendix stock for $73 to $75 a share, turning a profit of more than $1 million.