Levine Guilty of Fraud, Perjury and Tax Evasion : Investment Banker Agrees to Give Up $11.5 Million of Illicit Insider Profits

Times Staff Writer

Investment banker Dennis B. Levine settled the largest insider trading case in history Thursday by agreeing to give up more than $11.5 million of his illicit profits and by pleading guilty in federal court here to tax evasion, perjury and securities fraud.

The 33-year-old former managing director of the investment firm Drexel Burnham Lambert faces a maximum of 20 years in jail and fines of $610,000 on his felony convictions.

He also owes more than $2 million in back taxes from 1983 and 1984. The tax assessment will be paid out of the $11.5-million sum, according to Levine's lawyer, Martin Flumenbaum.

That figure is the largest amount given up, or "disgorged," by a single insider trading defendant in Securities and Exchange Commission history.

Levine's plea came on the same day that four young professionals indicted last month in an unrelated insider trading scheme pleaded guilty to having used secret takeover information allegedly stolen by a fifth, Michael David, from the law firm where he worked. David himself pleaded innocent to similar charges at his arraignment Thursday.

Say They Told Bosses

Two of the defendants said they had passed on the tips to superiors at their brokerages who knew they were receiving illegal inside information. Spokesmen for the firms denied that, however, and no one else has been charged.

The SEC charged Levine on May 12 with having made $12.6 million over six years by trading on confidential information that he gleaned as an investment banker at three firms in succession: Smith Barney, Harris Upham & Co.; Shearson Lehman Bros., and Drexel.

The SEC's original complaint listed 54 takeover deals in which Levine traded, but later court proceedings focused on nine in which Levine played a direct role by advising a company involved in the deal.

He was arrested the night of May 12 and charged with criminal obstruction of justice for having ordered executives of a Swiss bank through whose Bahamian office he traded to destroy documents linking him to the secret accounts. He was later released on $5 million bail.

The case shook Wall Street not only because of Levine's prominence in the mergers and acquisitions community but because of the prospect that he might give testimony incriminating other brokers or traders.

Levine said in a written statement that he has agreed to cooperate with the SEC and with federal prosecutors in further investigations. Although in his civil settlement with the SEC he consented to an injunction against fraud without admitting or denying the charges, in his written statement he said: "To contest the charges against me on technical grounds would serve only to prolong the suffering of my family. It would also convey the wrong message. I have violated the law, and I have remorse for my conduct, not excuses."

In its original complaint against Levine, the SEC sought penalties of more than $20 million. Although Levine will end up disgorging just over half that amount, U.S. Atty. Rudolph Giuliani of Manhattan said Levine's plea is not "anything you could remotely describe as a bargain."

The jail term of up to 20 years faced by the defendant, who is to be sentenced July 9, well exceeds the longest jail term so far imposed by any judge in an insider trading case--the four-year sentence last year of former LTV Corp. Chairman W. Paul Thayer, who passed on tips about several companies to a circle of friends and who committed perjury.

$1.2-Million Profit

In his guilty pleas before U.S. District Judge Gerhard Goettel, Levine admitted to trading illegally in the stock of Jewel Cos. in March and April, 1984, when it was the takeover target of American Stores, a client of Shearson Lehman Bros., Levine's employer at the time. Levine made a $1.2-million profit.

Asked why the plea focused on the Jewel transaction, which was not one of the nine that the SEC focused on, Assistant U.S. Atty. Charles Carberry noted that it had produced one of Levine's biggest scores. "It was a matter of prosecutorial discretion," he said.

Levine's guilty plea to evading $2 million in federal income taxes involved profits parked in his Bahamian accounts. Levine understated his personal income by $1.9 million in 1983 and by more than $2.1 million in 1984, the government charged.

Finally, he pleaded guilty to lying to the SEC in November, 1984, when he testified in an agency proceeding that he had bought stock in Textron, the Rhode Island conglomerate, after overhearing a casual conversation between "two gentlemen" in the reception area of Drexel's offices. (He worked for Shearson at the time.)

Levine's civil settlement with the SEC requires Levine to transfer to the United States $10.6 million in illicit profits held by the Bahamian branch of Bank Leu, his Swiss bank, and to give up about $1 million more in assets, including his partnership shares in the Drexel firm, a Ferrari automobile and his pension benefits.

The funds will be placed in the care of a receiver and used--after the tax bill is paid--to settle claims from those who may have sold stock to Levine, unaware that he was using superior information.

Levine will be permitted to keep the Park Avenue cooperative apartment where he and his wife and son live, as well its furnishings and a personal bank account that held about $500,000 two weeks ago.

Guilty Pleas

In the unrelated criminal case heard Thursday, federal prosecutors extracted guilty pleas from four men who confessed to receiving illicit trading tips from David when he was a junior associate at the prominent law firm of Paul, Weiss, Rifkind, Wharton & Garrison.

The four are Andrew Solomon, 27, a former research analyst at the brokerage of Marcus Schloss & Co.; Robert Salsbury, 27, a former analyst at the Drexel firm; Morton Shapiro, 27, a former brokerage trainee at Moseley, Hallgarten, Estabrook & Weeden, and Daniel Silverman, 23, a friend and customer of Shapiro's.

According to their testimony, David stole confidential information from his firm and used it to trade in a joint brokerage account with Shapiro and Silverman, his childhood friends from Cranston, R.I. He also passed tips to Salsbury and Solomon, who were neighbors.

Solomon said in court that when he passed David's tips on to "principals" at Marcus Schloss, they knew they were getting inside information. Irwin Schloss, the president of Marcus Schloss, said later that "I have talked to all of our people, and no one here ever knew of any insider information and never traded on any inside information."

Challenged by Firm

Salsbury similarly contended that his Drexel superiors knew he was providing them with illegal tips. Drexel issued a statement saying that "we are not aware of and have no reason to believe that Mr. Salsbury's conduct was known or condoned by any official of this firm."

Solomon, Salsbury, Shapiro and Silverman pleaded guilty to felony fraud counts and face up to five years in prison and $250,000 fines on those charges. Salsbury, who coached Solomon to lie about his trading to SEC investigators, also pleaded guilty to a count of obstructing justice, and Solomon to perjury. They will be sentenced July 18.

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