High Court Backs Lawyer’s Conviction for Insider Trading That Helped Kin

The Supreme Court today let stand the insider-trading conviction of a lawyer who passed stolen confidential information from his law firm to friends and relatives so they could reap huge profits in stock options.

The justices denied the appeal by Israel Grossman, 34, who was convicted in 1987 on 38 counts of mail and securities fraud. He later was sentenced to two years in prison.

Evidence at Grossman’s trial showed that six relatives and friends used the information about Colt Industries Inc.’s recapitalization plan to reap nearly $1.5 million in profits from a $33,000 investment in stock options.

Grossman at the time specialized in pension law at the New York firm of Kramer, Levin, Nessen, Kamin & Frankel. He later was dismissed from the firm for reasons unrelated to the insider trading charges.

The pension plan trustees at Colt, a diversified manufacturer of firearms and industrial products, began working with the law firm on July 9, 1986, on the $1.5-billion recapitalization. It was publicly announced 11 days later, causing Colt’s stock to soar.

Grossman did not work on the plan but learned details of it from another lawyer with whom he shared a secretary.

Grossman did not testify at the trial, but he argued as his defense that government prosecutors had not established beyond a reasonable doubt that he had obtained information known by him to be confidential or that he had any involvement in the stock option purchases.

In appealing to the Supreme Court, Grossman’s attorneys denied that his use of the information violated federal securities laws, partly because his activities were not in connection with the purchase or sale of securities.

But Justice Department attorneys, backed by the Securities and Exchange Commission, disagreed.

“(Grossman’s) conduct was plainly fraudulent,” they said. “(His) argument fails to recognize that the illegal trading he caused directly undermined the integrity of the securities market.”