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Freeman Will Enter Plea of Guilty in Insider Case : Goldman Sachs Broker Faces Fraud Count, but Charges Against 2 Other Traders Are Dropped

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Times Staff Writer

A criminal insider trading investigation that shook Wall Street in 1987 with the highly publicized arrests of three senior traders ended Thursday with the announcement that one of the men will plead guilty to a single felony count.

No charges will be filed against the other two. The U.S. Attorney’s Office in Manhattan said that Robert M. Freeman, the former head of arbitrage at the investment firm Goldman, Sachs & Co., will plead guilty to a mail fraud count stemming from one incident of insider trading.

But Acting U.S. Atty. Benito Romano said his office, after more than two years of investigation, had decided it won’t file any charges against Richard B. Wigton, the former head of risk arbitrage and over-the-counter trading at Kidder, Peabody & Co., and Timothy L. Tabor, a former Kidder official who later worked at Merrill Lynch. The decision lays to rest the government’s longstanding contention that there was a broad criminal conspiracy among the three to trade inside information on pending takeover deals.

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Romano admitted Thursday that the government had made a mistake by arresting the three in February, 1987, although he said he doesn’t believe that prosecutors owe Wigton and Tabor an apology for the lengthy investigation.

“We would have been better advised not to have proceeded with an arrest at such an early stage of the investigation,” Romano said. The arrests, in which the men were handcuffed and two were physically removed from their offices by federal agents, were extremely unusual in securities fraud cases. The arrests had been ordered by then-U.S. Atty. Rudolph W. Giuliani, now a candidate for mayor of New York.

After the arrests, Tabor lost his job at Merrill Lynch and Wigton was forced to take a leave of absence from Kidder. A Kidder spokeswoman said Thursday that the firm is holding talks with Wigton, who is 59, about returning to work.

The Securities and Exchange Commission is expected to file civil insider trading charges against Freeman. Sources on Thursday said that despite prosecutors’ decision not to bring criminal charges against Tabor and Wigton, the SEC may still bring civil charges against them and against Goldman Sachs. An SEC official declined to comment Thursday. Lawrence Pedowitz, a lawyer for Goldman Sachs, said he had “absolutely no idea” if the SEC will bring charges against the firm.

Lawyers for Freeman, 47, confirmed that he will plead guilty to a single felony count relating to the use of inside information in trading Beatrice Cos. options in 1986. He also resigned from Goldman Sachs on Thursday.

In his plea agreement, Freeman did not agree to cooperate with prosecutors in any continuing investigations. He appeared briefly Thursday in U.S. District Court in Manhattan to waive his right to a grand jury indictment. He is expected to formally plead guilty on Sept. 5.

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Deal Hit a Snag

In a document filed with the court, Freeman admitted that he had received inside information on a single occasion from Martin Siegel, the former Kidder investment banker who represented Kohlberg Kravis Roberts & Co. in its leveraged buyout of Beatrice. Siegel later pleaded guilty to securities fraud and tax evasion charges and gave prosecutors information that led to the investigation of Freeman, Tabor and Wigton.

In the court document, Freeman said that in early January, even before his conversation with Siegel, he had begun selling his personal stake in Beatrice and reducing Goldman Sach’s position because of suspicion that something had gone wrong with the Beatrice deal. But Freeman then talked by phone with Bernard Lasker, a broker whose nickname is “Bunny.” Lasker passed along a rumor that the Beatrice transaction had in fact hit a snag.

Freeman said he received illegal inside information from Siegel in the form of a brief remark confirming the accuracy of the rumor. Freeman said Siegel told him “Your bunny has a good nose.” Based on that remark, Freeman ordered the sale of additional Beatrice options.

The snag turned out to be a change in the structure of the deal, in which holders of Beatrice stock would be given less cash than originally envisioned. When the restructuring was disclosed publicly, the price of Beatrice stock fell by more than $4 in trading on the New York Stock Exchange.

The guilty plea marked an abrupt reversal by Freeman. For more than two years, he strongly maintained that he was innocent of any wrongdoing. In public statements, Goldman Sachs also had vigorously defended Freeman and kept him on its staff.

Sources close to the case said Freeman’s decision to plead guilty was influenced by the guilty verdict last month in the Princeton/Newport Limited Partners racketeering and securities fraud trial. James Sutton Regan, the firm’s managing general partner and a close friend of Freeman’s, was convicted on all counts along with five other defendants. One source said the verdict “discouraged Freeman.”

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Subjected to ‘Innuendoes’

But in his resignation letter, Freeman strongly denied that he was involved in any broad-ranging conspiracy. Freeman’s lawyers and Goldman Sachs, in separate statements, noted that the single charge filed Thursday was far narrower than the broad insider trading conspiracy alleged in an indictment returned in 1987. Freeman’s lawyers, Paul J. Curran and Robert B. Fiske Jr., both former U.S. attorneys in Manhattan, said in a written statement that “Mr. Freeman continues to deny categorically the conspiracy allegations upon which he was arrested and indicted in 1987.”

Goldman Sachs, in a letter to its employees, said: “We do not condone even a single act of wrongdoing.” But the firm said Freeman was subjected to “a series of highly publicized formal allegations and innuendoes that far exceed anything he actually did.”

Freeman faces a maximum sentence of five years in prison and a fine of up to $1.86 million, representing twice the amount that the government claims Freeman received in financial benefit from the illegal trades. U.S. Magistrate Nina Gershon allowed him to remain free without imposing any bail.

The indictment against Freeman, Tabor and Wigton was dropped after prosecutors acknowledged that they weren’t prepared to go to trial. At the time, Giuliani had promised that a new indictment would be brought against all three “in record time.” Prosecutors in 1987 stated in court that the original charges amounted only to “the tip of the iceberg.”

Stanley Arkin, Wigton’s lawyer, praised the decision to drop the investigation of his client. “It’s about time,” he said. “The arrest and what happened to him was one of the most egregious events in recent history in terms of law enforcement.” Without specifically naming Giuliani, Arkin said the person responsible for the arrest and indictment “owes him (Wigton) a devout apology.”

Andrew Lawler, Tabor’s lawyer, was on vacation Thursday. But in a written statement, he said the arrest and indictment of Tabor had caused “incalculable personal and professional damage.” Lawler said: “A thorough investigation would have established, and indeed has established, that Mr. Tabor is innocent of any wrongdoing.” Lawler, however, praised Romano’s decision to announce publicly that the investigation had been ended.

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No Comment From Giuliani

Tabor, 36, was said to be working as a computer software consultant. He didn’t respond Thursday to a request for an interview. Wigton also couldn’t be reached for comment.

Giuliani’s campaign press spokesman failed to return three phone calls from a reporter seeking comment on Thursday. Giuliani had said previously, however, that the arrests may have been unduly hasty.

Romano said he didn’t believe that the investigation marked a setback for the government. Referring to Freeman’s agreement to plead guilty, Romano said: “We have a substantial criminal charge lodged against a very significant member of the financial community.”

Jed Rakoff, Siegel’s lawyer, said the end of the Freeman, Tabor and Wigton investigation clears the way for Siegel to be sentenced.

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