No Slowdown for Insider Cases : Giuliani’s Legacy May Be a ‘Post-Boesky Morality’
U.S. Atty. Rudolph W. Giuliani began his five-year term denying accusations that he was neglecting white-collar crime. He ended it as the nation’s most celebrated crusader against illegal insider trading and other forms of Wall Street corruption.
In his battle against Wall Street lawbreaking, as in his other battles, he was simultaneously praised for his effectiveness and damned as a zealot who trampled the rights of the accused.
Yet as he announced his departure from his powerful post as federal prosecutor for Manhattan on Tuesday, allies and adversaries agreed that his departure wouldn’t--for a while, at least--slow the momentum of the 2 1/2-year-old Wall Street probes.
The investigations that have brought guilty pleas from Ivan F. Boesky, Dennis B. Levine and the Drexel Burnham Lambert securities firm “have just opened a spigot,” said Peter Romatowksi, a Washington defense attorney and former prosecutor in Giuliani’s office. “With Giuliani or without him, the water’s going to keep gushing for a couple of years.”
In his press conference, Giuliani agreed, saying he expected the Wall Street investigations will succeed at least as well without him as it did with him. But he took credit for what he said is a different atmosphere in the securities world toward lawbreaking.
“I think the atmosphere in the business community has been changed by all these cases,” he said, citing the securities fraud cases against Boesky and Levine, the tax fraud case against financier Marc Rich and other tax fraud cases. “I would not have anticipated what we were able to accomplish. I can leave feeling that we did a lot more than we thought we would.”
Several observers concurred, saying the investigations have created what one called a “post-Boesky morality” in the securities industry. And part of that, they said, stemmed from Giuliani’s eagerness to seek publicity for his team’s prosecutorial exploits.
“The outcome of these cases would probably have been just about the same under lots of different prosecutors,” said Ira Sorkin, a defense lawyer and former Securities and Exchange Commission official. “But Giuliani knew how to bring it all out for maximum public attention, and that’s good for the country.”
Giuliani also appeared to come close to acknowledging that he made an error in a case for which he has been roundly criticized, the prosecution of Goldman, Sachs & Co. executive Robert Freeman and Kidder, Peabody & Co. executives Richard Wigton and Timothy Tabor.
The three were indicted, arrested and led away in handcuffs in February, 1987. But within months, prosecutors had withdrawn the indictments, saying they were not prepared to go to trial against the three but promising new indictments would follow. They never did, and the three men have reportedly suffered greatly while waiting for the prosecutors’ next move.
Giuliani said he might have handled the case differently “if we had known all the things that we have subsequently learned.” He declined to discuss the case further.
Giuliani has also been criticized for using the federal anti-racketeering statute--the Racketeer Influenced and Corrupt Organizations Act, known as RICO--against securities firms. The statute, which carries heavy prison sentences and enormous financial penalties, was used by Giuliani for the first time against securities executives last summer with the indictments of five executives of Princeton/Newport Partners; Giuliani’s men had threatened to use it against Drexel Burnham Lambert as well.
The moves drew protests from defense lawyers who had already been complaining that Giuliani had been “criminalizing” securities violations by prosecuting cases that formerly would have been handled in civil cases by the SEC. They asserted that Giuliani was using the RICO weapon to force cooperation from unwilling witnesses.
“I believe he overused the criminal law,” said Stanley Arkin, a defense lawyer who represents Wigton and Salim B. Lewis, another executive who has been indicted on stock manipulation and other charges. “There have been a number of indictments that would not have been brought.”
But others disagreed. “Other prosecutors would have done just what he did,” said Charles Carberry, who ran Giuliani’s securities fraud unit until going into private practice last year. He noted that, despite the outcry over the use of RICO, it was the U.S. attorney in Chicago, not Giuliani, who last summer became the first to bring RICO charges against an individual charged with securities violations.
Carberry also said it was “truly ironic” that Giuliani would be accused of excesses in such cases, since at the beginning of his term he was faulted for allegedly chasing street criminals and ignoring crimes in the corporate suites.
While Giuliani insisted that the Wall Street prosecutions will continue no matter who succeeds him, in the past he has seemed to betray doubts. Last year, he declined to accept urgings that he run for the U.S. Senate seat held by Daniel Patrick Moynihan (D-N.Y.), fearing that some candidates under consideration to succeed him might not be as eager as he was to prosecute insider trading cases.
Ironically, one candidate under consideration then--defense attorney Otto Obermaier--is among the leading candidates for the job now, according to sources. Obermaier has represented several defendants charged with securities violations, including Robert Chestman of Gruntal & Co. He also represented John Mulheren, who was accused of threatening the life of Boesky.
Obermaier was quoted in the National Law Journal in April, 1987, expressing concern that securities law violations were too often handled by prosecutors rather than simply by the SEC. “Criminal enforcement has superseded civil enforcement, and with that there has been some distortion of the position that Congress envisioned,” he was quoted as saying.
One of the prosecutor’s principal adversaries in the Drexel case is a member of the committee that has been convened to suggest possible successors to Giuliani. The committee member is Michael Armstrong, who represents Drexel official Lowell Milken in the proceeding.
With Giuliani’s departure, the securities prosecutions will be left in the hands of Benito Romano, the interim U.S. attorney, and Bruce Baird, who is already head of the securities and commodities fraud unit.
Romano, 39, was in Giuliani’s office between 1980 and 1987 and was the third-ranking official when he left. He has since served as staff director of the New York State Commission on Government Integrity and, most recently, as a lawyer in private practice.
Baird, 40, who will carry the most responsibility for the investigations and has been in the U.S. attorney’s office since 1980, has headed the fraud unit since September, 1987. He also worked in the office’s organized crime unit before becoming one of two deputy chiefs of the office’s criminal division.
STILL TO COME IN THE WALL STREET CORRUPTION SCANDAL
Drexel Burnham Lambert Inc. The investment firm has reached a tentative agreement with the Manhattan U.S. Attorney’s Office to plead guilty to six criminal charges of mail, wire and securities fraud. Negotiations are continuing with the Securities and Exchange Commission to settle the agency’s civil suit against the firm.
Drexel Burnham Lambert employees. Indictments or settlements of securities violation charges are soon expected from Michael Milken, Lowell Milken and several others.
GAF Corp. A mistrial was declared Tuesday in the stock manipulation case against the New Jersey chemical and building materials firm and its vice chairman, James T. Sherwin. Selection of a new jury is due to begin Thursday.
Paul A. Bilzerian. The Florida corporate raider is due to go to trial May 1 on charges that he committed 12 felonies during four abortive takeover attempts in 1985 and 1986.
Robert Freeman, Richard B. Wigton, Timothy L. Tabor. Federal prosecutors have said they intend to file new charges against the three securities executives, who were indicted for mail, wire and securities fraud nearly two years ago. The original indictments were withdrawn.
Princeton/Newport Partners. Five senior officials of the investment firm have been indicted on federal racketeering charges and are awaiting trial. The firm is being liquidated.
Fred C. Lee. The SEC has brought charges of securities law violations against the Taiwanese businessman, accusing him of trading on inside information supplied by Stephen Wang Jr., a former junior stock analyst for Morgan Stanley & Co. Wang pleaded guilty last October to charges stemming from his role in the fraud.
John A. Mulheren. Prosecutors have repeatedly deferred bringing charges against the former high-flying stock speculator, who was accused of threatening the life of former speculator Ivan F. Boesky. Prosecutors have said they will file charges by Feb. 3 or drop the case. Mulheren was understood also to have been under investigation for securities law violations.
Salim B. Lewis. The securities trader and deal maker was indicted last November on 22 counts of stock manipulation, conspiracy and related offenses. His trial has not been scheduled.
Robert Chestman. The former senior vice president at Gruntal & Co. is scheduled to go to trial later this month on charges that he used inside information related to the 1986 takeover of Waldbaum’s by the Great Atlantic & Pacific Tea Co. The SEC has also filed civil charges again Chestman.
Business Week. The investigation into stock trading that relied on advance information from the business magazine has already brought guilty pleas from two individuals, and others may be ahead.
Haas Securities. A new federal investigation of stock manipulation came to light last week with the guilty plea of Stanley Aslanian Jr., former president of Haas, a now-defunct “penny stock” securities firm in New York. The investigation is said to be continuing.