Just how far does the Government plan to go in its roundup of insider traders? The distance, apparently. Until now, jittery Wall Streeters could take comfort that the targets would be largely the most flagrant, Ivan Boesky- like abusers. But that reassuring notion rapidly evaporated in the aftermath of the Government's arrest this month of three high-ranking Wall Street officials, two of whom had allegedly made insider-trading profits only for their firms, not for personal gain. The cases suggested that prosecutors plan to go after not just greedy mavericks but overzealous employees and the companies for whom they work. As a result, major investment firms began to brace for the possibility of criminal charges and lawsuits for the misdeeds of a tiny fraction of their workers.
No one's nerves were calmed last week by the spectacle of another once powerful Wall Streeter getting a prison sentence. Dennis Levine, a former managing director at the Drexel Burnham Lambert investment firm who broke open the scandal last year by implicating Boesky, drew a term of two years, making him the fourth insider trader this year who will do hard time. Levine had faced as much as 20 years on four counts of securities fraud, perjury and income-tax evasion. "I beg you, let me put the pieces of my life together again," he implored U.S. District Judge Gerard Goettel before the sentencing. In deciding on two years, Goettel cited Levine's "extraordinary" cooperation with investigators, which had helped them uncover a "nest of vipers" on Wall Street.
Only days before the sentencing, the Government's dragnet had proved effective in snagging another suspect, this time outside the Boesky ring. Israel Grossman, a 34-year-old Manhattan lawyer, was charged with sharing information about a Colt Industries stock buy-back with at least six friends and relatives. His telephone tips allegedly enabled them to reap $1.5 million in profits on their investments of just $38,273.
Yet anyone who watched only the Dow Jones industrial average last week would have been unlikely to sense that history's biggest stock scandal was unfolding. Opening after a three-day weekend, the Dow jumped 54.14 points on Tuesday alone, a record rise for a single session. It set an all-time high of 2244.09 on Thursday before slipping back to close the week at 2235.24. The market's reaction was in direct contrast to its performance after the Boesky revelations last November, when it plunged briefly as investors dumped speculative takeover stocks. This time, big institutions and foreign investors evidently believed the scandal poses no particular threat to their current strategy of snapping up basic industrial stocks, which the buyers think will be helped by a growing economy and a falling U.S. dollar. Says Byron Wien, a stock strategist for the Morgan Stanley investment firm: "The continued strength of the market shows that most investors do not believe the system is evil."