SEC Accuses Drexel Official in Insider Case : Biggest Such Action Ever Brought Says $12.6 Million Was Made in Illicit Trading
The Securities and Exchange Commission on Monday charged a top mergers specialist at the investment house of Drexel Burnham Lambert with making $12.6 million in illegal profits by trading stocks on inside information.
The case against Dennis Levine, 33, is the biggest insider trading action ever brought by the SEC. The agency obtained a temporary order freezing more than $10 million in Levine’s assets after claiming that he was trying to move the funds from a bank in the Bahamas to the Cayman Islands.
The SEC alleges that Levine made millions buying and selling stock in at least 54 companies involved in mergers, tender offers or leveraged buyouts using confidential information that he received as an employee of Drexel and two other New York investment banking firms. The alleged illegal activity dates from 1980.
Firms Not Charged
Levine, a rising star in the high-stakes Wall Street mergers game, has been a managing director of Drexel since February, 1985. Levine’s photograph and a quotation from him on the mergers business appears in Drexel’s 1985 annual report.
From 1980 to 1985 he worked at Smith Barney, Harris Upham & Co. and at Lehman Bros. Kuhn Loeb (now Shearson Lehman Bros.). None of the firms was charged with any wrongdoing.
Levine, who has been suspended from all duties by Drexel, could not be reached for comment.
“The SEC allegation, if true, would be a most serious breach of Drexel Burnham Lambert’s standards,” the investment house said in a statement. “In fact, this is the first such allegation made against a Drexel employee in our 51-year-history.”
The firm said it would “cooperate fully” with the SEC on the case but would have no further comment until it has more information.
The allegations against Levine follow an agreement last week by First Boston Corp. to pay penalties and repay illicit profits that the SEC said the investment firm had made by trading on inside information. In that case, one branch of First Boston traded shares based on confidential client information obtained by another branch.
The two cases are likely to raise questions about whether corporate clients can trust their investment bankers with highly sensitive takeover information.
Levine bought and sold shares in companies involved in some of the best-known merger and takeover cases in recent years, the SEC charged. Among the deals that he allegedly profited from were the 1980 Dart Industries merger with Kraft, the 1982 United Technologies bid for Bendix, the 1983 Litton Industries tender offer for Itek Corp., the 1983 RCA divestitures of Hertz and CIT Financial, the Limited’s 1984 tender offer for Carter Hawley Hale Stores, Crocker National Corp.’s 1984 sale to Midland Bank, Sir James Goldsmith’s 1985 takeover of Crown Zellerbach and GAF’s 1985 hostile effort to buy Union Carbide.
But Levine’s biggest profit, the SEC alleged, came from the R. J. Reynolds-Nabisco Brands merger in 1985. Levine bought and sold 150,000 Nabisco shares for a profit of nearly $2.7 million in less than a month, the SEC charged.
The trades were executed by an associate working at the Bahamian office of a foreign financial institution, according to the SEC. The associate, Swiss citizen Bernhard Meier, 35, also profited from Levine’s inside information and was charged with illegal trading by the SEC. The firm for which he worked was not identified.
The SEC said Meier made about $152,000 from illegal trades in at least 18 companies.
According to the SEC, Levine placed orders with his broker in the Bahamas during his lunch hours by making collect calls from a New York City phone booth. The agency said Levine traveled to the Bahamas under an assumed name to pick up his profits, which he collected in $100 bills, keeping the trips secret even from his wife.
The SEC further charged Levine and Meier with attempting to cover up their illegal activity by lying, destroying documents and transferring funds to new accounts. The trades continued for months after the SEC informed Levine that he was under investigation, the agency charged.
The SEC will try to recover the $12.6 million in profits and treble damages on the more than $6 million in profits that it alleges he made after a 1984 insider trading sanctions act took effect, according to John H. Sturc, SEC associate enforcement director.
The agency did not rule out the possibility of future criminal charges against Levine and Meier.
Times researcher Tony Robinson in New York contributed to this story.
