Judge to Dismiss FMC Suit Over Insider Trading

A federal judge on Monday dealt a setback to corporate lawsuits that seek to hold Wall Street investment firms financially liable for illegal insider trading traceable to their employees or business associates.

U.S. District Judge Ann C. Williams said she will dismiss FMC Corp.’s lawsuit against three major investment firms, former stock speculator Ivan F. Boesky and other Wall Street officials. FMC had alleged that insider trading and other misuse of information contributed to a run-up in its stock last year and thus raised the cost of a $2-billion recapitalization by $260 million.

Williams said essentially no damage was done to FMC because the additional money the machinery and defense equipment manufacturer had to borrow to complete the recapitalization plan was paid out to its own stockholders.

FMC’s lawsuit, filed on Dec. 18, 1986, was expected to help pave the way for additional lawsuits by corporations whose recapitalization or merger plans were made more expensive by a surge in stock prices just before a deal being announced.

Williams said she will issue a written ruling Wednesday approving the defendants’ motions to dismiss the case.

“We’ll be reviewing the opinion of the judge when it’s available and deciding on an appeal and on possible state court action,” said spokeswoman Pat Brozowski at FMC’s Chicago headquarters. She declined further comment.

Besides Boesky, the lawsuit named David S. Brown and Brown’s former employer, Goldman, Sachs & Co.; Ira B. Sokolow and his former employer, Shearson Lehman Bros., and Dennis B. Levine and his former employer, Drexel Burnham Lambert Inc.

Levine, a former managing partner at Drexel Burnham, pleaded guilty on June 5, 1986, to charges stemming from insider trading activity involving shares of a number of takeover targets.

Levine, who led investigators to Boesky, was sentenced Feb. 20 to two years in prison and fined $362,000.

Sokolow, a former vice president in the mergers department at Shearson Lehman, was sentenced Nov. 6, 1986, to a year and a day in prison and was given three years’ probation after pleading guilty to charges of securities fraud and tax evasion. Brown, who also pleaded guilty to passing along inside information, was sentenced in January to a 30-day jail term, given three years’ probation and fined $10,000.

Boesky was not in court Monday, but “obviously from his perspective it’s very good news,” said Harvey Pitt, one of his attorneys.

Last November, Boesky settled charges that he had engaged in illegal insider trading.

Boesky agreed to pay the government $100 million in penalties and to cooperate with a continuing investigation into stock trading improprieties. He also agreed to plead guilty to an unspecified criminal charge.

FMC’s lawsuit said Boesky had earned nearly $21 million by trading FMC stock.