NEW YORK — A federal judge, tentatively finding that investment banker Dennis B. Levine made millions of dollars in illegal stock trades through a secret bank account, on Thursday placed an indefinite freeze on more than $10 million of Levine's assets.
The freeze, requested by the Securities and Exchange Commission, covers all of the money that Levine is accused of having made in six years of trading stocks on the basis of inside information that he gleaned as a leading investment banker on merger deals.
About $10.6 million of the money is on deposit at the Bahamas branch of Bank Leu, the Swiss bank through which Levine did his trading. The SEC says it cannot locate another $1.9 million that it contends Levine withdrew from the account.
The freeze order, which will remain in effect until completion of Levine's criminal and civil trials, also covers all of Levine's U.S. assets except for a $500,000 bank account to be used for living expenses and shares in his $700,000 co-operative apartment in Manhattan and his partnership shares, worth about $300,000, in the investment firm of Drexel Burnham Lambert. He has put up the apartment and the shares as bail in connection with criminal charges of obstruction of justice stemming from the insider trading case.
Similar freeze orders have been key elements in recent SEC investigations because they immobilize the money at issue for the several years it may take the agency to fully investigate and try a case.
The agency, which charged Levine on May 12 after learning that he was planning to transfer $10 million of the Bahamas cash to a second secret account in the Cayman Islands, regards Thursday's injunction by U.S. District Judge Richard Owen as "a total victory," said Michael D. Mann, an SEC lawyer working on the case.
Levine is still entitled to a trial, at which his lawyers will presumably cross-examine witnesses who thus far have provided mostly written evidence. He has maintained that he is innocent of the insider trading counts and of the criminal charges.
Levine was suspended from his duties as a merger specialist at Drexel Burnham after the SEC charged him with illegally trading the stocks of 54 companies on inside information. Nine of those companies were confidential clients of Levine's at the time of the purchases, and at least another 16 were clients of the three firms that employed the 33-year-old financier over the six-year period. He had worked for Smith Barney, Harris Upham & Co. and Shearson Lehman Bros. before joining Drexel in 1985.
In imposing his order, Owen acknowledged how far Levine has fallen. "I realize this is a man who one day was an esteemed manager of a brokerage firm and the next day he's up to his eyeballs in trouble," the judge said. "But I cannot put to one side the fact that here's a broker who signs a contract not to deal in the securities of his own firms' customers. And he is doing that in a secret account offshore under his mother's (maiden) name and making secret trips down there to get cash and have conferences.'
Attorney Cites Filings
Levine's attorney, Arthur Liman, argued at the lengthy hearing preceding Owen's order that most of Levine's purchases involved stocks with publicly known takeover potential. In five of the nine cases in which the defendant's own clients were involved, Liman noted, a potential buyer had already filed with the SEC a 13-D form, a disclosure statement required when any person or institution buys 5% or more of a company's stock. Those filings often precede takeover bids and in vague terms express the buyer's intentions.
In many of the other cases, speculation over the stocks had inundated the press.
"Wall Street was awash in information on these cases," Liman said, contending that there is no proof that Levine knew more than anyone else.
SEC attorney John Sturc replied that Levine was intimately involved with those deals: "It's one thing to have rumor and speculation," he said. "It's another thing to be there." The timing of Levine's purchases, he said, suggests that he was much more certain of the possibilities than the average investor.
Judge Owen agreed that "being at the shoulder of people making the decisions is entirely different from reading 13-Ds or the Wall Street Journal."
Liman also asked Owen to refrain from imposing a preliminary injunction on grounds that its imputation of Levine's guilt would prejudice his defense.
"The press has lynched him already," the lawyer said. Liman said he would not object to continuing the existing freeze as a temporary restraining order. But such an order can run for only 10 days; the first one expired Thursday.
Levine's defense is complicated by his refusal to personally refute Bank Leu's position that Levine masterminded its trading in the 54 stocks cited by the SEC and later contrived a cover-up that included destroying bank documents and coaching bank executives to lie to the SEC. Because he faces criminal charges, Levine has so far refused to testify in the civil proceedings. The bank and most of its executives, however, have been given immunity from prosecution by the SEC and the Justice Department.
The bank's testimony clearly weighed heavily in Owen's ruling. "What inference is one to draw from the fact (that the trading) was made in an offshore bank through an alias account untraceable to him?" he asked Liman.
"There can be a number of reasons, illegitimate as well as legitimate reasons, that have nothing to do with" insider trading, Liman answered. "Tax reasons, reasons that he doesn't want to disclose to his employers, or he may have violated the rules of his employers."