Judge Allows ‘Inside Trader’ to Withdraw Guilty Plea

A psychiatrist who admitted that he played the stock market based on confidential information he learned from a patient is not necessarily guilty of insider trading, a U.S. District Court judge said in a ruling released Monday.

The decision, by U.S. District Judge Miriam G. Cederbaum, was based on last month’s landmark appellate court decision--United States vs. Chestman--that limits the ability of prosecutors to go after certain investors who trade on confidential information.

In the decision, Cederbaum permitted the psychiatrist, Robert H. Willis, to withdraw his June, 1990, guilty plea to two counts of securities fraud. She also heard arguments, but reserved a decision on, a motion to dismiss the government’s July, 1989, insider-trading indictment against the psychiatrist.

The psychiatrist’s case has gained notoriety both because of the unusual way in which he obtained the confidential information and the identity of his patient, Joan Weill. She is the wife of financier Sanford I. Weill, who in January, 1986, was quietly mapping plans to pump $1 billion in new capital into BankAmerica Corp. on the condition that he be named its chief executive.

The psychiatrist learned about the financier’s secret plans, according to the indictment, when Joan Weill discussed the possibility of moving to San Francisco and the potential for “substantial upheavals” in her life.

The indictment charged that Willis bought 13,000 shares of BankAmerica common stock for himself, his wife and his children before Weill’s interest in BankAmerica was made public--and sold the shares for a $27,476 profit after Weill’s efforts were publicly announced, and the stock’s price rose.

Willis pleaded guilty to two counts of securities fraud in June, 1990. He had been facing a maximum penalty of 10 years in prison and $500,000 in fines.

But Willis sought to withdraw his guilty plea after the ruling in the Chestman case. In that case, a stockbroker named Robert Chestman bought shares of Waldbaum Inc. after the son-in-law of Waldbaum’s president told Chestman that the company was about to be sold for a premium.

In a decision widely criticized by prosecutors, the appellate court found that the son-in-law had no fiduciary duty to keep the bid secret.