6 Plead Not Guilty to Racketeering

NEW YORK — Five officials of Princeton/Newport Partners and a former bond trader with Drexel Burnham Lambert pleaded not guilty Thursday in Manhattan to federal racketeering charges.

Lawyers for the officials of Princeton/Newport, an investment partnership, used the occasion of the officials’ arraignment to issue a harsh denunciation of federal prosecutors.

Since the five were indicted Aug. 4, the lawyers have contended that the prosecution was brought only because Princeton/Newport refused to cooperate with the continuing criminal investigation of investment banks Drexel Burnham Lambert Inc. and Goldman, Sachs & Co.

But the lawyers took the unusual step Thursday of distributing a press release to reporters and spectators in a federal magistrate’s courtroom, calling the charges “totally unwarranted and an example of reprehensible government overreaching.”

Free on Bail

The indictment was the first time that officials of a securities firm had been charged with violating the federal Racketeer-Influenced and Corrupt Organizations Act, also known as RICO. The five, along with a former securities trader for Drexel, were accused in the indictment of engaging in a pattern of racketeering activity by arranging phony stock trades to give Princeton/Newport $13 million in illegal tax benefits and by helping Drexel to manipulate stock prices and avoid regulatory requirements.

The RICO law carries harsh penalties and is normally used in big drug and organized crime prosecutions.

All six defendants were allowed to remain free pending a trial. Bruce L. Newberg, the former Drexel trader, wasn’t present but his lawyer entered his plea. U.S. Magistrate Kathleen A. Roberts set bail for each at $250,000.

Princeton/Newport has offices in Princeton, N.J., and Newport Beach.

The U.S. attorney’s office in Manhattan has been conducting a lengthy investigation of Drexel for suspected insider trading and other securities law violations, based mainly on information turned over by former speculator Ivan F. Boesky. The government also is investigating suspected illegal trading by Robert Freeman, head of arbitrage at Goldman Sachs. Drexel and Goldman officials and Freeman have denied any wrongdoing.

The U.S. attorney’s office for some time tried to persuade Princeton/Newport officials to help the prosecutors, but the firm refused.

In the three-page statement handed out in the courtroom, the defense lawyers claimed that prosecutors from the U.S. attorney’s office in Manhattan violated Justice Department guidelines on using the RICO law. They denied that any of the Princeton/Newport officials actions violated criminal law and asserted that the charges were an attempt to coerce them into giving information to prosecutors.

The statement said Princeton/Newport “is proud of its association with” Drexel and Goldman Sachs. It said the firm “refuses to join in this broad attack on Wall Street.” It stated that “Our clients do not wish to hurt innocent people whom they have known for many years.” And the lawyers, referring to the recent rash of criminal prosecutions against major Wall Street figures--and paraphrasing writer Lillian Hellman’s famous remarks before the House Un-American Activities Committee--asserted that “Our clients will not cut their consciences to fit this year’s fashion.”

Neil Cartusciello, the assistant U.S. attorney handling the case, said he wouldn’t respond to the press release because it would be “inappropriate.” However, he noted that U.S. Atty. Rudolph W. Giuliani, when he announced the indictment last week, had said it had been reviewed and approved by Justice Department officials in Washington.

The five Princeton/Newport defendants include James Sutton Regan, a managing general partner, and four Princeton/Newport partners, Jack Z. Rabinowitz, Charles M. Zarzecki, Paul Berkman and Steven B. Smotrich.