NEW YORK — Federal securities officials granted a Bahamian bank and most of its officers immunity from prosecution in a multimillion-dollar insider trading scheme in return for information tying its biggest customer, New York investment banker Dennis B. Levine, to the trading, according to court documents disclosed Tuesday.
The documents give the first indication of how the Securities and Exchange Commission conducted its investigation into Levine's trading. The probe produced the biggest insider trading lawsuit in SEC history.
But Levine's attorney charged in a federal court hearing here that the immunity arrangement allowed the bank, Bank Leu International, to shield its own executives and possibly other clients involved in illicit transactions from the investigation. Also protected from prosecution was the bank's Switzerland-based parent company, attorney Martin Flumenbaum said.
Levine and a former Bank Leu executive, Bernhard Meier, were charged May 12 with making more than $12.6 million in illicit profits on the basis of insider information that Levine gleaned from his work as an investment banker at three Wall Street firms over a period of nearly six years. The charges cover trades on stocks involved in 54 merger deals during that time, including nearly 20 on which Levine or his firm had been retained.
Levine was subsequently suspended from his job as a managing director for mergers and acquisitions at Drexel Burnham Lambert. He was also charged with criminal obstruction of justice on allegations that he asked Meier and others at Bank Leu to destroy trading records and lie to the SEC about the transactions.
At Tuesday's hearing, Flumenbaum asked U.S. District Judge Richard Owen to strike from the SEC's lawsuit a declaration by SEC attorney Leonard Wang on grounds that it is mostly hearsay. The declaration outlines the agency's charges against Levine and Meier.
Owen declined to throw out Wang's declaration, but he did indicate that the SEC will have to present documentary evidence at a hearing Thursday that Levine made his trades on the basis of inside information. The hearing will be held on the SEC's request for an injunction freezing Levine's assets abroad and in the United States.
SEC lawyers said they will have enough evidence to make Wang's declaration superfluous. "By Thursday, Mr. Wang will be history," said David W. Stanley, an SEC attorney.
Deposition testimony given by Wang on Saturday and made available to The Times indicates that the SEC's initial target in the investigation of insider trading in scores of takeover stocks was Bank Leu, through which millions of dollars in trade orders had been placed with brokerage offices in the United States. Levine's name and those of "shell" companies that the SEC contends he established to mask his activity did not appear on the U.S. accounts.
After a nearly fruitless six-month effort to persuade the bank to disclose the name of the customer directing most of that trading, the SEC agreed in March not to prosecute the institution or any executives other than Meier if the bank would turn over the customer's account documents and other evidence.
The agreement and the SEC court complaint that preceded it were sealed by mutual agreement of the bank and the agency. The agreement was made public after Flumenbaum demanded it over the weekend.
"The agreement gave the bank the right to not give the SEC the names of any other customers," Flumenbaum said during Tuesday's hearing. He suggested that Levine will contend as part of his defense that some trades to which Bank Leu linked his name were not his at all but may have been executed on behalf of other clients or for the bank's own accounts.
A Washington attorney for Bank Leu, Harvey L. Pitt, dismissed any suggestion that the bank did anything other than ape Levine's trades. "I can understand why a lawyer in his (Flumenbaum's) position would want to turn attention away from his client and blame somebody else," he said. "Any trading that took place was copied, as the SEC charges, from him."
Wang said in his deposition that the agency believes that the bank and customers other than Levine and Meier made less than $1 million in its own accounts by mimicking Levine's trades.
The SEC agreement requires Bank Leu to give up, or "disgorge," that money to the SEC.
Pitt, who confirmed the figure, said the bank and the SEC are "still discussing logistics" of the disgorgement.