Lawyer Guilty of Helping Levine in Illicit Trading : Reich Faces Up to 10 Years, $101,000 in Fines for Securities and Mail Fraud

A former partner in one of the nation’s leading mergers and acquisitions law firms pleaded guilty Thursday to helping insider trader Dennis B. Levine make almost $1 million in illegal stock profits.

But the lawyer, Ilan K. Reich, 31, said he voluntarily withdrew from Levine’s trading ring in August, 1984, and never accepted the money due as his share of the illicit trading.

Nevertheless, Reich faces a sentence of up to 10 years in federal prison and fines of up to $101,000 for his role in Levine’s five-year, $12-million scheme, the largest insider trading case ever successfully pursued by the Securities and Exchange Commission. In a civil settlement disclosed Thursday, Reich also agreed to pay a $485,000 penalty to the SEC in settling the commission’s fraud charges against him without admitting or denying them.

Written Statement

So far, five young lawyers and investment bankers have been charged in connection with trading apparently masterminded by Levine, a former mergers and acquisitions specialist at three Wall Street firms, most recently the Drexel Burnham Lambert investment banking firm. Levine’s trades allegedly concerned as many as 54 takeover deals. Levine, among others, has also pleaded guilty to criminal charges in the case.

Following his guilty plea to one count each of securities fraud and mail fraud, Reich, lanky and with prematurely gray hair, stood silently with his pregnant wife while his lawyer, Robert G. Morvillo, distributed a written statement. It said Reich had pleaded guilty “because I am guilty--guilty of criminal conduct, guilty of gross stupidity and guilty of betraying my family and my (law) partners.”

The statement went on to express Reich’s “sorrow and remorse” and added: “I recognize the grave nature of the offenses which I have committed, both because they undermined the integrity of the securities market and because they were a serious breach of my duty of trust as an attorney. I deeply regret my actions, as well as the shame and embarrassment they have caused to my family, friends and associates.”

His SEC settlement, he said, will cost him all of his assets except his Manhattan home, an Oldsmobile, half the proceeds of the sale of a summer home outside of New York and some cash. Reich, who has two children, said he will have to give up his interest in his retirement plans, about $95,000 in investments and the $100,000 value of his partnership account at his former law firm, Wachtell, Lipton, Rosen & Katz.

Reich also told U.S. District Judge Robert W. Sweet at his arraignment that he is under the care of a psychiatrist.

Not Contradicted

Of Reich’s decision to withdraw from the Levine insider trading ring, Morvillo said: “He thought about it and thought about it, and finally he just walked away from it.” He said Reich gave Levine no information at all after August, 1984, an assertion that was not contradicted by any specific SEC charges.

The written statement stressed that Reich made his decision before learning that he would become a partner in Wachtell, Lipton in January, 1985, although lawyers say that people about to become partners in major law firms get indications of their pending anointments well in advance of the fact.

Reich resigned from the firm in July, 1986, and is automatically disbarred as a result of his guilty plea to the felony charges.

In a second, related case, the SEC said Thursday that it has settled civil insider trading charges against David S. Brown, 31, a former vice president at the investment firm of Goldman, Sachs & Co., by ordering him to give up $145,790 in assets.

Brown was charged with having tipped one of Levine’s associates to the details of impending takeover deals. He pleaded guilty to criminal charges in the affair on Sept. 4.

At Least 12 Instances

In the Reich case, the SEC in its civil suit charged the former lawyer with having tipped Levine to as many as 12 impending takeover offers from 1980 through August, 1984, while he was an associate at Wachtell, Lipton, which generally represents one party or another in almost every major corporate merger.

Among the deals cited by the SEC were the two on which Reich pleaded to criminal charges: the mid-1984 acquisition of SFN Cos. by E. M. Warburg, Pincus & Co., a Wachtell, Lipton client, and a plan by the Searle family to sell its 34% interest in G. D. Searle & Co. The company had hired the law firm to help evaluate the plan.

Levine made $129,316 on SFN stock and $834,743 on stock and stock options of Searle, the SEC said. The indictment of Reich, handed up by a federal grand jury Oct. 3, covers only $613,503 Levine earned in Searle stock trades.

Morvillo, the attorney, said he did not know the details of his client’s financial understanding with Levine.

Reich told Judge Sweet that he has recently been hired as a “consultant” by an unnamed energy company. Morvillo later described the job as “a busywork thing to get him out of the house. Frankly, no one’s going to entrust him with any responsibility until they see how this thing (the sentencing) turns out.”