Newspaper article THE JOURNAL RECORD

Sec Subpoenas Stretch Insider Trading Laws to New Limits

Newspaper article THE JOURNAL RECORD

Sec Subpoenas Stretch Insider Trading Laws to New Limits

Article excerpt

NEW YORK - The many subpoenas issued by the Securities and Exchange Commission in the wake of its $100 million settlement with Ivan F. Boesky have touched off widespread fears of an SEC manhunt that could ensnare dozens of people who dealt with the arbitrager - and stretch the laws against insider trading to new limits.

``Everyone is trying to remember exactly what they've said to Boesky and how it might sound, and wondering whether there is any way that they'll be in trouble,'' said one securities lawyer who has been contacted by several of the people subpoenaed or named in subpoenas, some of them asking just when the SEC would ask for the return of illegal profits.

So far, the SEC has only prosecuted insider trading cases where there was clear evidence that the person charged had been aware of any wrongdoing. But with the growing number of subpoenas, some lawyers are wondering whether the SEC is preparing to attack new territory: the routine information-sharing that is part of the relationship between investment bankers who provide financing for takeovers and arbitragers who handicap the deals.

And in Boesky's case, the relationships have been cozy, indeed. David Kay, co-head of the mergers and acquisitions group at Drexel Burnham Lambert Inc., the leader of the junk bond market, has been quoted as saying that he talked to Boesky every day. Drexel also invested in Boesky's deals, and provided financing for his companies' activities.

Boesky also dealt with many other sources in the course of his business, for the job of an arbitrager is to gather a mosaic of information from enough different sources so that he can predict the outcome of a deal. But most securities lawyers say that it would be difficult for the SEC to bring criminal charges against Boesky's contacts if the only evidence is a pattern of trading information, with no underlying agreement or profit-sharing arrangement.

``If an investment banker or another arb passes on a stock tip to an arbitrager, without getting any benefit for it, I don't think the law's advanced to the stage where that's illegal,'' said Dennis Block, a corporate lawyer at Weil, Gotshal & Manges. ``It may be wrong, but I don't think it's insider trading.''

SEC enforcement lawyers say they are not breaking new legal ground, but that leaves plenty of room for interpretation. For if the SEC takes a broad view of what constitutes getting a benefit - if, for example it decides that the investment bank financing a deal benefits by pushing a stock into friendly hands - many investment banks and arbitragers could be in trouble.

``In that kind of situation, I wouldn't expect criminal charges, but there could be some civil settlements where people are asked to disgorge their profits,'' said a New York securities lawyer.

Others, though, suggest that some of the information-trading practices now taken for granted on Wall Street are clearly against the law.

``An investment banker receiving confidential information has a duty of loyalty to use it only for the limited purpose for which it was imparted,'' said Prof. …

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