Former investment banker Dennis B. Levine pleaded guilty today to securities fraud and other federal charges after agreeing to help the government pursue its expanding investigation of insider trading.
Levine, 33, a $1 million-a-year executive who held posts in the merger departments of several Wall Street firms in recent years, admitted making a $1.2 million profit by trading in the stock of Jewel Cos. in 1984, knowing it was the target of a still-secret takeover attempt by one of his firm's clients.
Levine had been charged with making $12.6 million in illegal profits through trading in the stock of 54 companies based on confidential, inside information about the companies. His pledge to cooperate with prosecutors means the government is "in the middle of a long campaign," said U.S. Attorney Rudolph W. Giuliani.
Officials refused to say what information they expect to receive from Levine in return for a substantial reduction in the scope of the charges against him. Speculation on Wall Street is that Levine is being pressured to reveal the network of connections that enabled him to profit from dozens of corporate mergers before they were known to the investing public.
The government's anti-insider-trading campaign also produced guilty pleas in a separate case today as three young Wall Street professionals and a fourth colleague admitted trading securities on inside information. The tips allegedly came from a friend who was an attorney at a prominent New York law firm and learned of proposed takeover bids from others at the firm, the government charged.
The lawyer, Michael David, a former associate with Paul Weiss, Rifkind, Wharton & Garrison, pleaded not guilty today before U.S. District Judge Gerard L. Goettel.
Two of the four defendants who pleaded guilty told Judge Goettel that the tips they allegedly got from David were passed on between November and March to others at the Wall Street firms where they worked.
Andrew Solomon, who had been a stock analyst at the arbitrage firm of Marcus Schloss & Co., said today he had told two "principals" of the firm about the upcoming takeovers and the firm used that information to buy securities. An arbitrage trader specializes in buying and selling stocks of companies involved in mergers or takeovers.
Robert Salsbury, who also pleaded guilty, said he told colleagues on the arbitrage desk at Drexel Burnham Lambert Inc. that Avondale Mills was a target of a still-unannounced takeover attempt, allegedly based on a tip from David. The Drexel colleagues then bought Avondale stock, Salsbury said. Solomon, who was fired by Marcus Schloss, pleaded guilty to conspiracy to commit securities fraud. Salsbury, who resigned from Drexel Burnham, pleaded guilty to mail fraud and to attempting to obstruct the Securities and Exchange Commission's probe of the insider-trading conspiracy.
SEC officials and federal prosecutors did not identify those who allegedly received the inside information from Salsbury and Solomon. A Marcus Schloss spokesman declined to comment. Drexel Burnham said it did not believe that Salsbury's conduct was known or condoned by any of its officials. It is cooperating with the government and continuing its own investigation, the firm said in a statement.
The other two defendants cited with David were Morton Shapiro, formerly a stockbroker at Moseley, Hallgarten, Estabrook & Weeden Inc., and Daniel J. Silverman, who had a securities trading account at the Moseley firm. They admitted buying options in the stock of a takeover target allegedly on David's advice, and they said they and David shared a profit of nearly $140,000 when they sold the options two days later. Silverman pleaded guilty to a securities fraud charge and Shapiro pleaded guilty to conspiracy to commit mail fraud.
The five defendants all are under 30 years of age. While they represented, in Giuliani's words, young men in the early stages of promising professional careers, Levine had clearly arrived.
As a prominent specialist with Shearson Lehman Bros. Inc., and then a managing director of Drexel Burnham, Levine was involved in many of the major mergers and takeovers battles in the past five years in which the two investment banking firms were advisers.
At the same time, the government charged, Levine was using that highly confidential, advance information about takeovers to buy stocks at bargain prices, before announcement of takeover bids sent the prices soaring.
In a civil complaint May 12, the SEC charged that Levine tried to conceal his trading through a Bahamian bank account using his mother's maiden name. Levine's Bahamian banker, Bernhard Meier, also allegedly used Levine's inside information to purchase securities, the SEC has charged. Meier has not answered the SEC charges.
The SEC's civil complaint was accompanied by a criminal probe, which led to Levine's guilty pleas today.
Levine also pleaded guilty today to a tax evasion charge, admitting that he had reported taxable incomes of $61,255 in 1983 and $80,013 in 1984, when his true income for those years was $1.9 million and $2.2 million, respectively.
And he admitted lying to SEC investigators probing how he learned in 1984 that Textron Inc. was about to become a target of a hostile takeover bid. Levine secretly bought 51,500 shares of Textron with that knowledge and prompted his employer, Shearson Lehman, to offer its services to Textron.
Levine acknowledged today that he got the tip from an unnamed "source," and not by overhearing a conversation in a Wall Street lobby.
As part of his plea agreement, Levine settled the SEC civil complaint, pledging to transfer $11.5 million from his Bahamian bank account and other assets to an account in New York administered by a court-appointed receiver, Sheldon Goldfarb. The funds will be used to pay claims by the government and private claims against Levine.
He also is required to surrender his luxury sports car and shares in Drexel Burnham. He and his wife retain their shares in an exclusive Park Avenue cooperative, life insurance policies and funds reserved for Levine, in part to pay his lawyers.
Giuliani said the guilty pleas did not amount to a plea "bargain." Salsbury and Shapiro face maximum penalties of 10 years imprisonment and $500,000 in fines, while Silverman and Solomon's maximum penalties are half that. Levine could receive 20 years imprisonment and $610,000 in fines.