Irate Judge Refuses to Sign Settlement in Insider Case
An irate federal court judge here refused to sign a proposed consent decree Monday between the key figure in the so-called Yuppie Five insider trading case and the Securities and Exchange Commission, blasting the settlement as lacking teeth.
U.S. District Judge David N. Edelstein, at a hearing that is usually just a formality in such cases, recessed the case until he and the SEC can agree to some changes that he said “would put teeth” into an otherwise “inadequate” settlement with defendant Michael N. David.
David, 28, a former associate at the prominent New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison, has pleaded guilty to four criminal counts for passing confidential information about corporate takeovers from his law firm to four employees of Wall Street investment firms.
And last week he became the first of the five young defendants to face civil charges. He agreed to settle those charges the same day they were filed by the SEC. But the case was held up when the judge refused to sign the decree.
The proposed settlement is unusual because under its terms David agrees to pay back the $50,000 in illegal profits he made, plus penalties of as much as $100,000, over an 11-year period. The penalties are tied to David’s salary. Each year he repays $5,000 of the illegal profits plus 5% of any earnings over $20,000, except that the penalty does not apply in years when he makes less than $25,000.
Edelstein roundly criticized the SEC for agreeing to this plan. Were David--who lost his job with Paul, Weiss last March and is likely to be disbarred--to renege on his payments, the judge said, the SEC has no provision for collecting the money.
The judge proposed that if David defaults on any payment, he has 10 days to make good on it. If he fails to do so, he has 30 days to pay the entire remaining penalty.
Carmen Lawrence, an assistant SEC regional administrator in New York, predicted that additional sanctions to satisfy Edelstein will be added to the settlement later this week.
