17 Charged in Scheme Involving AT&T; Deals : Wall Street: Former company exec is accused of leading ring that used inside information to trade in stock of takeover candidates.
In one of the biggest insider-trading scams outside Wall Street, federal authorities Thursday charged a former AT&T; Corp. executive and 16 others in a far-flung scheme to exploit the secret takeover plans of the huge telephone company.
The participants allegedly used information supplied by the mid-level executive in the company’s human resources department to trade in stock of potential AT&T; acquisition targets over a four-year period.
The scheme, described by prosecutors as a web of friends and family spanning five Eastern states, cast Main Street in a light once reserved for Wall Street’s most notorious professionals, such as speculator Ivan Boesky.
It also reflected the federal government’s inability to quell the enormous temptation to illegally profit in the stock market, a persistent source of white-collar lawbreaking.
Some of the alleged AT&T; insider trading occurred at the height of publicity about Boesky, who made at least $50 million through the illegal use of non-public tips about impending corporate takeovers.
“One of the problems in this area, why you have recurring violations, is that people are tempted by the ability to make a lot of money with little risk,” said John Sturc, former associate director of enforcement at the Securities and Exchange Commission and now a private securities lawyer in Washington.
Six people were charged in a federal indictment and two others pleaded guilty, the U.S. attorney’s office in Manhattan said. These eight people and nine others were named in a civil securities fraud action by the SEC, the federal agency that polices the financial markets.
The six people indicted were charged with conspiracy to commit securities fraud, fraud in connection with takeover offers, wire fraud and obstruction in connection with AT&T;’s takeover plans between December, 1988, and last year. If convicted, they face prison terms and fines.
The 17 named in the SEC’s fraud action include the six indicted by the U.S. attorney’s office and two former AT&T; employees.
AT&T; itself was not charged with any wrongdoing, and it cooperated with the investigation that led to the indictment, officials said.
Officials provided no explanation of how the scheme was discovered. But the action marks the most aggressive crackdown on securities fraud since the Wall Street scandals of the 1980s that made Boesky a household name.
Officials said the 17-member ring was masterminded by Charles Brumfield, a former AT&T; labor relations manager at the company’s Morristown, N.J., offices. He is accused of parlaying secret knowledge of takeover plans by the company into lucrative tips to friends and family that allowed them to make $2.6 million from stock purchases. The alleged wrongdoers were spread throughout New Jersey, New York, Illinois, Florida and North Carolina.
One of those identified in the SEC complaint is Brumfield’s son, Joseph.
Federal law prohibits insider trading, which gives an unfair advantage to people with secret information that could affect a company’s stock price. The practice proliferated during the 1980s, an era of takeovers that frequently drove up the stock prices of target companies.
