Lynch’s Tenacity Credited for SEC’s Successful Cases

Since Gary G. Lynch took over as director of enforcement at the Securities and Exchange Commission, the SEC has brought by far the biggest cases it has ever undertaken.

Some say Lynch, now 38, simply happened to get the job at the right time. Securities lawyers said insider trading on Wall Street had become so flagrant and was being carried out by such big players that cases against individuals such as Dennis B. Levine and Ivan F. Boesky were inevitable.

But lawyers who know Lynch well said that while the SEC might have taken on the big cases anyway, Lynch’s special blend of tenacity, wily negotiating skills and level temperament ensured that the cases were successful.

“It’s not that Lynch has been lucky,” said a former SEC attorney who worked with Lynch. “If another person had been there, it might not have had the same history. Gary has been the steady hand that kept everything on course.”

The case against Drexel Burnham Lambert caps an investigation that has led to record civil penalties and criminal charges against a variety of major Wall Street insiders and securities firms.

Some Are Critical

Lynch got the job in 1985, at the relatively youthful age of 34, after a swift rise through the ranks of the SEC staff, which he joined in 1976. The top enforcement job happened to become available when his predecessor, John Fedders, was forced to resign because of negative publicity about his personal life, including allegations in a divorce case that he beat his wife. Lynch, an associate enforcement director, at first had been named only interim director, but in a surprise move John S. R. Shad, then the SEC’s chairman, made the appointment permanent.

“Time has proved that it was a smart choice,” said Edward D. Herlihy, a New York lawyer who was once Lynch’s boss at the SEC. Herlihy said Lynch boosted morale in the enforcement division when it was extremely low. He also stemmed the exodus of the division’s predominantly young lawyers into higher-paying private practice. Herlihy added that “the Boesky case is a classic example of first-rate investigative work.”

Although Lynch has been praised for bringing big cases, he and the SEC also have received stiff criticism for not doing more. Some of the criticism has come from Capitol Hill, from Rep. John D. Dingell, D-Mich., chairman of the House subcommittee on oversight and investigations and his staff. They have said that in the recent wave of hostile takeovers and acquisitions, the SEC has barely scratched the surface of stock trading abuses.

But SEC staffers deny this. Another private defense lawyer who used to work for the SEC said: “To criticize people for not bringing enough cases when in fact they have gotten to the inner sanctum of Wall Street to me is crazy.”

Lynch has also rejected criticism that the $100-million financial penalty Boesky paid was too low, given the amount of insider trading he may have carried out, and that the SEC allowed him to sell off large stock positions before the charges against him were publicly announced.

Lynch, the son of the owner of a small trucking company, grew up in Upstate New York. He is a Phi Beta Kappa graduate of Syracuse University and a 1975 graduate of Duke Law School. He spent a year working for a private Washington law firm before joining the SEC staff.

Former colleagues from his first years at the SEC years said that Lynch had a penchant for taking on the most complicated cases. In 1978, for example, Lynch traced a tortuous path through complex records, building a case against the Los Angeles-based brokerage firm Bateman Eichler, Hill Richards. The firm later accepted stringent penalties in settling SEC charges of manipulating the price of stocks and making unauthorized purchases for customer accounts.

Associates said Lynch is from the group of SEC enforcement lawyers who learned their investigative skills under the tutelage of Stanley Sporkin, a highly regarded SEC enforcement chief of the late 1970s, who is now a federal judge. Lynch helped bring several major corporate bribery cases. Lynch also directed the prosecution of R. Foster Winans, the former Wall Street Journal reporter who was charged with insider trading.

Lawyers who know Lynch said that after he was named director, he played a crucial role in negotiations that broke open the current series of major insider trading investigations. Lynch’s clever and persistent negotiations with officials in the Bahamas pierced the islands’ traditional veil of bank secrecy; the Bahamian authorities disclosed that Dennis Levine, an investment banker at Drexel Burnham Lambert, was the individual who had been using the Bahamian banks to conceal his inside trading. That case in short order led to the prosecution of Boesky and others.