Former deputy defense secretary Paul Thayer used a front man to buy 10,000 shares of stock in a company that was a takeover target so he would not be linked to the transaction, according to federal prosecutors.
Thayer and Dallas stockbroker Billy Bob Harris later presented $100,000 in profits to two close female friends in a covered breadbasket after joking that they had some "bread" for them, the prosecutors said.
Thayer and Harris pleaded guilty last month to obstruction of justice by giving false testimony about their role in a scheme that netted Harris and seven associates $2 million in illegal profits. Sentencing has been delayed until May 8.
Thayer and Harris requested the delay because they and the seven associates are nearing settlement of a civil suit by the Securities and Exchange Commission, which is seeking repayment of the $2 million. A key question in the negotiations is whether Thayer, who provided the inside information but did no trading in his name, will be forced to repay some or all of the money, according to SEC officials.
The new allegations about the insider trading scheme were disclosed by U.S. Attorney Joseph E. diGenova in a sentencing memo filed in federal court here. Thayer and Harris each face a maximum five-year prison term and a fine of up to $5,000.
DiGenova urged that Thayer and Harris receive a "substantial" prison term for crimes that he said were motivated by "greed and arrogance." He described Thayer's conduct in the probe as "rampant obstruction of justice by an individual who served at the pinnacle of corporate and governmental power."
Thayer's attorney, Robert Fiske, said he will respond shortly in court papers. Harris' attorney could not be reached for comment.
It took investigators months to discover the links between a corporate leader whose net worth was more than $10 million, a female friend who ended up under FBI protection and a flamboyant nightclub owner who once touted stocks on a Dallas television station.
Thayer, former chairman of LTV Corp., resigned as the Pentagon's No. 2 official 15 months ago, saying the allegations against him were "entirely without merit" and that he would "ultimately be exonerated."
Thayer has pleaded guilty to charges that, while serving as a director of several companies, he provided confidential information to Sandra K. Ryno, a former LTV receptionist whom Thayer financially supported; to Harris and a female friend, Juli Williams; Thayer's doctor and a female friend, Thayer's banker, and a Dallas insurance agent.
The sentencing memo and officials involved in the case provided this account:
The first insider stock purchase occurred in September 1981 when LTV, the Dallas-based conglomerate then headed by Thayer, was considering an attempt to take over Grumman Corp., a New York aerospace firm.
Thayer and Harris decided to buy Grumman stock and used a friend of Harris to make the purchase, according to prosecutors. They said Harris gave the friend $20,000 in seed money -- which came from Thayer either directly or through Ryno -- in exchange for 50 percent of the expected profits.
On Sept. 16, 1981, Thayer called Harris from a pay phone and told him that LTV was finalizing its plans to take over Grumman. The next day Harris' friend bought $35,000 in Grumman stock options.
LTV privately approved the takeover attempt Sept. 21, and the following day Harris' friend bought 10,000 shares of Grumman stock worth $260,000.
When the takeover attempt was made public Sept. 23, the price of Grumman stock jumped sharply. Harris' friend, who has not been publicly identified, sold the securities for a $200,000 profit and gave half to Harris. Thayer and Harris then gave the cash to Ryno and Williams at a dinner party.
The Grumman takeover never was completed. Prosecutors said the trading was not included in the criminal charges because they learned of it too late in the investigation.
The federal probe did not begin until a year later. On Sept. 22, 1982, SEC officials noted, Harris had bought $2.3 million in Bendix Corp. stock for himself and his customers a half-hour before trading was halted to announce a takeover attempt by Allied Corp.
Prosecutors did not learn until later that Harris bought the 38,200 shares nine minutes after Thayer, using an assistant's credit card, called him from a pay phone.
"They got greedy," said SEC enforcement attorney Curt H. Mueller. "That's frequently what trips people up in these cases."
Mueller said investigators had trouble figuring how "a bunch of people in Dallas" might have access to inside information. He said Harris and his friends distanced themselves from Thayer and denied knowledge of the relationship between Thayer and Ryno, which the SEC learned of through an anonymous tip.
Ryno, who was living in a $200,000 suburban Dallas house with a swimming pool that was built at Thayer's expense, invoked the Fifth Amendment and refused to testify.
Thayer, who had been at the Defense Department for six months, acknowledged his relationship with Ryno to the SEC in June 1983. Other witnesses quickly came forward to change their testimony. But officials said all participants continued to deny any insider trading.
Ryno broke off the relationship with Thayer last August and hired a new lawyer. The attorney, George Davis, convinced Ryno that she faced a possible prison term that would take her away from her teen-age daughter. Davis called Charles H. Roistacher, the lead Justice Department attorney in the case, and said "he needed to talk to me right away about cutting a deal," Roistacher recalled.
Roistacher and a colleague flew to Dallas. Ryno was assured that she would not be prosecuted and was assigned FBI bodyguards.
In two days of interviews, Ryno began to lay out how the insider trading scheme had worked. Although officials said Thayer continued to call her and seek her support, Ryno provided the same account to the SEC during interviews at the Mayflower Hotel here.
By then investigators learned of a third trading episode. On July 28, 1982, Thayer, as a director of Anheuser-Busch Cos., attended a board meeting at which the company discussed plans to acquire Campbell Taggart Inc., a Dallas food conglomerate.
Thayer told Ryno to remain home that day and wait for his call, according to prosecutors. They said Thayer later called Ryno, announced that "the deal . . . was on" and told her to relay the news to Harris, which she did.
In the next six days, Harris bought 56,000 shares of Campbell Taggart stock for himself and his customers. After the takeover attempt was announced Aug. 3, Harris, Ryno and their associates sold their stock at a profit of more than $500,000.
When questioned later about this and the other episodes, however, Thayer and Harris continued to deny any involvement in insider trading. Prosecutors said Harris led them down several blind alleys and even produced phony telegrams from his brokerage firm to support his claim that the company had recommended purchase of the Campbell Taggart stock.
Dwight Arant, a former employe in the firm, testified that Harris had asked him to provide some telegrams about the Campbell Taggart stock in case anyone later questioned why Harris was buying "a wagonload" of it. Arant testified that Harris repeatedly asked him to deny this during the SEC probe.
Last November, after prosecutors had pieced together most of the evidence, attorneys for Thayer and Harris agreed to discuss a settlement of the case. "Thayer couldn't face a public trial," Roistacher said. The guilty plea was finalized last month after prosecutors insisted that it include a detailed account of the case and the cover-up.
"This is just about the most egregious insider trading case to come down the pike," Mueller said. "If these guys can do it and get away with it, then you might as well just hang up the entire enforcement effort because nobody's ever going to go to jail."