2 Wall Street Companies and 3 Persons Indicted in ‘Yuppie 5’ Insider Case
Two Wall Street arbitrage firms and three individuals were indicted by a federal grand jury Wednesday on conspiracy and securities fraud charges in a case stemming from the so-called Yuppie Five insider trading investigation begun in 1986.
The indictment appears to be a further indication of Manhattan U.S. Atty. Rudolph W. Giuliani’s willingness to indict Wall Street firms and not just employees in the recent crackdown on Wall Street corruption.
Wednesday’s 31-count indictment named Marcus Schloss & Co., a specialist firm on the New York Stock Exchange that also had an arbitrage department, and arbitrage firm Victor Teicher & Co. The indictment also named Victor Teicher, the firm’s sole general partner, individually, as well as D. Ronald Yagoda, a former Marcus Schloss vice president and head trader, and Ross S. Frankel, a former employee of Drexel Burnham Lambert Inc.’s domestic arbitrage department.
Wall Street arbitrage mainly consists of speculation in takeover-related stocks.
In essence, the indictment charges that the defendants conspired to trade--and, in some cases, actually did trade--illegally on inside information leaked by Michael David when he was an attorney at the prominent New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison. David, one of the Yuppie Five defendants, pleaded guilty in August to charges that he had leaked information about pending corporate takeover deals for which the law firm was doing confidential legal work.
The Yuppie Five case got its name because all five defendants were under 30. Of the other four defendants in that case, three worked in the securities industry and one was an investor. All five have pleaded guilty to securities fraud charges and cooperated with the government’s continuing investigation.
The indictment returned Wednesday charges that the Marcus Schloss firm and the other defendants were part of the same network that received the information leaked by David. In a press conference, Giuliani said the two firms were indicted because evidence showed that employees were acting on behalf of the firms when they allegedly conspired to trade on the inside information.
The indictment also charges that Frankel and Yagoda committed perjury and obstruction of justice by lying in testimony given to the Securities and Exchange Commission while it was investigating the case in 1986. Frankel is accused of leaking the identity of companies on Drexel’s secret list of clients that had consulted the investment firm about possible acquisitions or takeovers. The companies on the list allegedly included Republic Airlines, Westchester Financial Services, Western Union and Warneco.
Teicher also allegedly received inside information “misappropriated” by an unnamed co-conspirator who worked for former Wall Street stock speculator Ivan F. Boesky.
The unidentified individual allegedly leaked to Teicher and Teicher’s company information about Boesky’s strategy and the positions Boesky held in various takeover stocks.
May Have Made Millions
According to the indictment, the pending deals leaked by David included GAF Corp.’s planned tender offer for Union Carbide, Triangle Industries’ planned acquisition of American Can and Ampco-Pittsburgh Inc.’s plans to acquire Allegheny International.
The indictment didn’t specify how much the defendants allegedly made from insider trading, but the amount is believed to total in the hundreds of thousands of dollars or low millions.
If convicted, the individual defendants face a maximum penalty on each count of five years in prison and a fine of $250,000. The securities firms, if convicted, face a maximum fine of $500,000 for each count. The Teicher firm was named in 22 counts and the Marcus Schloss firm in eight counts.
The Schloss firm noted Wednesday that it had settled related civil charges in an SEC lawsuit last February, when it paid penalties totaling more than $400,000.
In its statement, the firm said the indictment is “based on the alleged misconduct in 1985 and 1986 of a junior research analyst whose employment of nine months was terminated when the matter came to light.” The analyst was Andrew Solomon, one of the Yuppie Five defendants, who pleaded guilty in 1986 and was sentenced to one year’s probation and a $10,000 fine. Schloss said it would “seriously contest” the criminal charges.
In a statement, Victor Teicher said he was “disappointed that the U.S. attorney has decided to further expand the reach of the federal securities laws through use of the criminal process.” He also said he “emphasized most strongly that he never violated those laws and is confident that his innocence will be established at trial.”
Still Contesting Charges
Stanley Arkin, a lawyer representing Yagoda, said his client “did not trade on inside information and has done nothing wrong whatsoever.” Arkin added that “I am confident he will be acquitted at trial.”
Yagoda also was named in the SEC suit against Marcus Schloss and is still contesting the SEC charges.
Lawyers for Frankel couldn’t be reached immediately for comment.
Most of the charges in the wave of criminal securities fraud cases brought by Giuliani’s office in the past few years have been against individuals rather than securities firms themselves. But in addition to the indictment of two firms on Wednesday, Giuliani, as reported, has also sent out a “target letter” to Drexel Burnham Lambert, indicating that the big Wall Street investment banking firm may be named in a criminal indictment in a long-pending investigation of the firm and certain employees.
