Tape Recordings of Calls Were Key in Princeton/Newport Case
Federal agents in 1988 raided the New Jersey offices of Princeton/Newport Limited Partners and seized tape recordings of telephone conversations that the firm routinely made to verify the accuracy of trades. Excerpts of the tapes made up a big part of the prosecution’s racketeering case against five Princeton/Newport executives and a former Drexel Burnham Lambert Inc. trader.
The following conversations are from tapes introduced as evidence in the trial:
APRIL 11, 1985 Part of the indictment charged that Princeton/Newport, at the request of defendant Bruce Newberg, then working for Drexel, illegally manipulated downward the market price of COMB Co. stock. Newberg allegedly made the request because Drexel at the time was having trouble lining up buyers for a new issue of COMB convertible bonds. A lower stock price would have made it easier to sell the bonds.
Newberg calls Princeton/Newport head trader Charles M. Zarzecki. In trader’s jargon, he asks Zarzecki to cause the price of COMB stock to fall and assures him that Drexel will reimburse Princeton/Newport for any loss.
Newberg: We’re doing a convert (a convertible bond issue). It’s probably gonna come 9’s up 20. I, I don’t think you guys would want to set ‘em up, but if you wanted to, you could have ‘em. If you want, you’ll have the option.
Zarzecki: OK.
Newberg: But they’re trying to run the stock on us here, OK?
Zarzecki: Yeah.
Newberg: The stock’s 16 bid, up from 15 3/8.
Zarzecki: OK.
Newberg: I don’t want this thing to be 16 bid.
Zarzecki: Uh.
Newberg: I want you to, you know, get rid of it, . . . ah, you know. I want, I want it down to at least 15 3/4, and hopefully lower. Um, I wouldn’t mind you selling a little bit first. And um, you’re indemnified, uh, you know, my--, it’s, y--, you know what I’m saying.
Later the same day, Zarzecki calls Newberg and reports that he has done what Newberg requested. He explains, in jargon, that he used intermediaries to ensure that no one knew that Drexel was behind the sale of COMB stock.
Zarzecki: You know, what I did was I went, I went to, direc . . . I went to ‘em directly for 10,000 and went around them for 30.
Newberg: Uh, huh.
Zarzecki: . . . I had somebody else come in and do it so you paid, uh, you know, you paid a couple of cents’ commission to just get around, s--, so they didn’t know it was us.
Newberg: Agreed. Uh, that was good.
Zarzecki: So.
Newberg: You’re a sleaze bag.
Zarzecki: You taught me, man.
Newberg: (Laughs)
Zarzecki: Hey listen, turkey . . .
Newberg: Welcome to the world of being a sleaze.
DECEMBER 27, 1984 Most of the charges in the indictment relate to allegations that Princeton/Newport attempted to generate phony tax losses by rigging sales of securities that had declined in value. The firm allegedly “parked” the securities, arranging a sham sale under which the “buyer” agreed to hold the securities and sell them back to Princeton/Newport at virtually the same price a short time later. Defendant Paul Berkman, a Princeton/Newport general partner, calls Barbara Geary, a trading official at Merrill Lynch & Co., and explains what he would like to do.
Berkman: We did some trades, uh, I don’t know, a month or two ago, uh, uh, where we, uh sold you some stuff and then bought ‘em back again.
Later in the conversation:
Berkman: I just want to take some losses, really what it amounts to, before the year ends . . . And then, we . . . over the next couple of days, I buy ‘em back from you in varying amounts just to, you know, to make it all look kosher, and ahh . . . , bu--, bu--, when I buy ‘em back, I buy ‘em on a sh--, on a short settlement, so that they . . . settle on the same day . . . as the original. . . .
DECEMBER 31, 1984 Berkman again calls Barbara Geary at Merrill Lynch.
Berkman: Oh, you got a second?
Geary: Yeah, sure.
Berkman: Uh, maybe you can, uh, do one m--, you think you can do one more trade for us, uh, for a tax purpose?
The conversation digresses, and then Berkman returns to the subject.
Berkman: No, I want to sell 1,400 bonds ($1.4 million worth of bonds) for cash settlement today.
Geary: 1,400 bonds?
Berkman: Right. Right. A million of one and 400 of another, and then, uh, you know, we’ll buy them back, uh, on Wednesday or something.
Geary: OK, let me see what we can do.
APRIL 5, 1985 Defendant James Sutton Regan, Princeton/Newport’s managing general partner, has a phone conversation with Newberg, in which the two get into an argument over the carrying, or financing, costs of various securities that Princeton/Newport and Drexel have parked for each other. They begin by talking about Mattel stock that Princeton/Newport had been holding for Drexel.
Regan: You know, you don’t want to pay this cost of carry. It’s the stupidest thing I’ve ever seen.
Newberg: It’s, it’s bull-- ‘cause I’m not paying it.
Regan: Why not?
Newberg: OK? Because I’ve carried plenty of positions for you, in case you haven’t been realizing it. I’ve been charging you my cost to carry (i.e., the interest rate on the money borrowed to purchase the stock).
Later in the conversation:
Regan: When you do, when you call up and ask me to hold something for a, for a, you know, for a month or something like that, you know, we just do it at the prime rate thing . . .
