‘Contrite’ Cohort of Boesky Gets Two-Month Jail Term

Martin A. Siegel, the former investment banker who admitted receiving suitcases stuffed with $700,000 in cash as illegal payoffs from Ivan F. Boesky, was sentenced Friday to two months in prison on insider trading and tax evasion charges.

In imposing the extremely short sentence, U.S. District Judge Robert J. Ward said he took into account Siegel’s extensive cooperation with prosecutors. He added that he believed Siegel’s contrition for his crimes was genuine.

Siegel, 42, was sentenced more than three years after he pleaded guilty. The two charges related to his admitted role in extensive insider trading among senior executives at several of Wall Street’s most prestigious firms. Prosecutors said sentencing was postponed while Siegel cooperated in the investigation that led to the guilty plea last September of Robert M. Freeman, former head of risk arbitrage at the investment banking firm of Goldman, Sachs & Co.

Siegel, who now lives in the Florida beach community of Ponte Vedra, near Jacksonville, appeared in federal court in Manhattan with a deep tan, dressed in a dark gray suit. With his wife seated next to him, he told the judge in a quavering voice that “over the last 3 1/2 years, I have been as diligent as I could to do everything in my power to make up for these terrible mistakes.”

The judge also sentenced Siegel to five years on probation, during which he must perform community service, and required him to pay $50 in court costs. The judge didn’t impose a fine. However, Siegel already has paid $9 million in penalties under a December, 1986, settlement with the Securities and Exchange Commission. He must begin his sentence by July 16.

Siegel was once one of Wall Street’s best-known mergers and acquisitions specialists. During his rise to eminence at Kidder, Peabody & Co., he became known for creative strategy in takeover battles and he established the firm’s arbitrage business. But beginning in 1982, he began leaking confidential information about impending takeovers or mergers to stock speculator Boesky. The two eventually worked out an arrangement under which Siegel was to receive in cash a small percentage of Boesky’s illegal profit.

Siegel also admitted that he frequently shared valuable secret information with acquaintances at other big Wall Street firms.

His downfall came shortly after he transferred to Drexel Burnham Lambert. Siegel was one of the first people implicated by Boesky when Boesky agreed to cooperate with the government and plead guilty to an insider trading-related charge.

Judge Ward said Siegel’s crimes were “serious violations” and added: “There is no excuse for what he did.” But the judge said he was impressed that Siegel came forward within a day of receiving an SEC subpoena in November, 1986, and offered to plead guilty and cooperate with the government.

“You have an individual here who now seems to understand what he did wrong,” the judge said. The judge also said he took into account that Siegel’s profits from insider trading were a tiny fraction of the many millions Boesky made from his illegal activity.

Siegel’s cooperation with the government, although extensive, wasn’t entirely successful. His information led federal prosecutors in New York to one of their biggest debacles in recent years. Based on Siegel’s information, Freeman as well as two other respected Wall Street figures, Richard B. Wigton and Timothy L. Tabor, were arrested in 1987 in highly publicized raids on their Wall Street offices.

But the information on which the initial charges were based proved to be faulty, and the government was never able to make a case against Wigton and Tabor. Freeman pleaded guilty to a single felony count and was sentenced to four months in prison.

In presentations to the judge Friday, prosecutors nevertheless extolled Siegel’s cooperation. They said that when he agreed to cooperate, he volunteered information about a sophisticated insider trading scheme involving Freeman, which at the time the government knew nothing about. “He revealed a conspiracy of much greater cleverness” than the one involving Boesky, Assistant U.S. Atty. Neil Cartusciello said.

Cartusciello asserted that much of Siegel’s information was later corroborated. But he said the government wasn’t able to prosecute fully because the scheme involved sharing of valuable information among arbitragers after takeover deals had already been announced publicly but before the transactions had actually closed. In part because the suspected individuals could justify their securities trades based on plentiful newspaper articles and rumors, the government wasn’t able to prove that the trading was based on inside information.

The government ultimately was unable to bring a big case because “the type of information swapping that was going on was just too hard to figure out,” Cartusciello said. The government also disclosed that Siegel had given information in the Princeton/Newport stock parking case, which resulted in guilty verdicts last year, and also supplied damaging information in the investigation of Drexel.

Siegel’s brief prison sentence was consistent with the short sentences meted out so far in the many Wall Street insider trading and securities fraud cases stemming from Boesky’s cooperation. Although Boesky was sentenced to three years, most of the other defendants, whether they cooperated with the government or not, have been sentenced to only a few months in prison or no prison time at all.

Bruce Baird, a Washington lawyer who headed the Manhattan U.S. Attorney’s securities fraud division during much of the Boesky-related investigations, said in an interview that while the sentences may be short, he believes they have been effective. “They sent a message that makes an awful lot of people think twice before doing the things that people in this investigation were caught doing,” Baird said.