The second mistrial in the GAF Corp. stock manipulation case isn’t likely to affect two other big, upcoming Wall Street trials in which the former head of the Los Angeles brokerage firm Jefferies & Co. is also due to be the main prosecution witness, prosecutors and defense lawyers said Thursday.
Boyd L. Jefferies was the key witness in the GAF case, which the government now says it hopes to try a third time in early April. After 12 days of deliberations, the second trial ended in a hung jury on Wednesday. Jurors on Thursday continued to refuse to discuss their deliberations. Leslie Nuchow, the foreman, said they had made a pact not to talk about how they had voted because they didn’t want to influence prospective jurors in the next trial.
Nevertheless, in off-the-record conversations, lawyers involved in the case said that, based on notes the jury had sent back to U.S. District Judge Mary Johnson Lowe during their deliberations, they believe that it’s likely that most jurors had been in favor of a conviction.
A first trial also ended in a mistrial when the judge ruled that prosecutors had withheld a piece of evidence from the defense.
As in the GAF trial, lawyers say the fate of the other two cases, against Singer Co. Chairman Paul A. Bilzerian and stock trader Salim B. Lewis, will likely hinge on Jefferies’ performance on the witness stand.
The GAF trial was closely watched by defense lawyers in the other cases, with some lawyers being present in the courtroom for Jefferies’ entire testimony.
Jurors Were Deadlocked
Legal experts say that, despite the two mistrials in the GAF case, there isn’t any ground to conclude that prosecutors have seriously mishandled the trials or that Jefferies isn’t a credible witness. “I don’t think you can make a judgment about the competence or professionalism with which the cases are being handled” based on the two mistrials, said Stephen Gillers, a New York University law professor. He added that “if anything, an 11-1 split suggests the case is pretty strong.”
Jurors on Saturday night had told the judge they were deadlocked 11-1. After deliberating further, jurors on Wednesday told Judge Lowe that the divisions had become less clear, with some jurors voting for conviction, others for acquittal and still others undecided.
From the start, the GAF case had been viewed as a difficult one for the government to prove. The New Jersey-based maker of chemicals and building products, along with the firm’s vice chairman, James T. Sherwin, was accused of hiring Jefferies & Co. to illegally bid up the price of Union Carbide stock in October, 1986. GAF then held 9.6 million Carbide shares that it had amassed during a failed attempt to take over the company. The indictment charges that GAF hoped that the stock manipulation would help it get a better price for its Carbide shares.
But the government never charged that GAF ended up benefitting financially from the alleged stock manipulation. Jefferies & Co.'s purchase of Carbide shares actually took place days before GAF sold off a big chunk of its Carbide stock, and in the intervening time the stock’s price had fluctuated significantly.
In addition, much of the case hinged on Jefferies’ recollection of details, which at times seemed to be flawed.
The Lewis case, due to go to trial in September, is viewed as presenting similar difficulties for the government. Lewis allegedly manipulated the price of Fireman’s Fund Corp. stock in an effort to help American Express Co., which has a substantial investment in Fireman’s Fund. But the indictment doesn’t allege that Lewis received any direct personal benefit, nor does it suggest there is evidence that American Express asked him to do it.
Stanley Arkin, Lewis’s lawyer, declined to comment at all on the Lewis case. But Arkin said he considered it significant that, at a time when Wall Street is coming under increasing criticism, the GAF jury failed to reach a verdict. “The bottom line of the (GAF) case is that, in an age when we’re bashing Wall Street, the jury didn’t convict.”
Arkin speculated that the jury failed to reach a verdict because, as in other cases brought in the last two years by the U.S. Attorney’s Office in Manhattan, the government isn’t clearly able to show who was harmed by the alleged wrongdoing. “I think at least somebody (on the jury) must have said, ‘Who got hurt?’ ” Arkin said. “I think that was what infected the case.”
Arthur Matthews, Bilzerian’s lawyer, was said to be out of town Thursday and couldn’t immediately be reached for comment. David Brodsky, the assistant U.S. attorney prosecuting the case, said the GAF mistrial wouldn’t in any way affect the government’s plans to begin trying the Bilzerian case on May 1.
Lawyers also said Manhattan U.S. Atty. Benito Romano’s decision to immediately seek a third GAF trial showed that the government wasn’t backing away from the hard-line stand against Wall Street crime that it adopted while Rudolph W. Giuliani was U.S. attorney. Romano is the interim U.S. attorney, serving until a permanent replacement is nominated and confirmed.
Romano said that despite having to allocate staff and resources to yet another GAF trial, he didn’t expect it to delay work on other pending Wall Street cases. Romano noted that his office expects to get six additional assistant U.S. attorneys under the program recently announced by the Justice Department to step up prosecution of securities and commodities fraud cases.
Among pending investigations is the one of Drexel Burnham Lambert’s “junk bond” chief, Michael Milken. He was notified some time ago that he is likely to be indicted, but months have elapsed with no charges. Sources have said prosecution was being delayed while the U.S. Attorney’s Office broadened its inquiry to look at some of Drexel’s clients.