NEW YORK — Wall Street's insider trading scandal spread beyond the corporate banking arena Tuesday as a partner in a top New York law firm specializing in corporate takeovers quit his job after being notified that he is under government investigation in the case involving investment banker Dennis B. Levine.
The Wachtell, Lipton, Rosen & Katz law firm said the resignation of Ilan K. Reich, 31, on Monday evening was a result of the Securities and Exchange Commission's investigation into the largest insider trading case ever.
Lawrence Pedowitz, a partner and spokesman for the firm, said Wachtell, Lipton has been subpoenaed by the SEC and is "cooperating closely" both with that agency and with the U.S. attorney's office here.
The investigation of Reich's conduct, Pedowitz said, centers on activities before Jan. 1, 1985, when Reich became a partner in the firm. He had been an associate member since 1979.
Pedowitz would provide no other details except to say the firm has "no information that suggests" that others in the firm are under investigation.
Neither the SEC nor the U.S. attorney's office here would comment on the Wachtell, Lipton disclosure except to say that no civil or criminal charges have been filed against Reich.
An unidentified woman who answered the telephone at Reich's home Tuesday said he would not comment immediately. And a New York lawyer retained by Reich on Monday night, Robert G. Morvillo, said he couldn't comment until he had time to familiarize himself with the case. Morvillo said he was contacted by the SEC on Tuesday, adding: "I promised to get back to them before the end of this week."
Reich is the first lawyer to be drawn into the widening scandal, which concerns illegal profits made by trading on confidential information about corporate takeovers. Implicated earlier were former employees of four major Wall Street investment banking firms: Drexel Burnham Lambert, Lazard Freres & Co., Shearson Lehman Bros. and Goldman, Sachs & Co.
Gave Up $11.5 Million
Central to the illicit scheme in which all have been implicated is Levine, the 33-year-old former managing director of Drexel Burnham Lambert. He pleaded guilty in U.S. District Court here last month to securities fraud, perjury and tax evasion and agreed to give up more than $11.5 million of the $12.6 million that the SEC said he made by illegally trading on confidential information. That is the largest amount given up by a single insider trading defendant in history.
Like those implicated before him, Reich is young and highly regarded, both at his firm and by his peers in the competitive world of mergers and acquisitions.
Sources who have worked with Reich on takeover deals since 1979, when he joined Wachtell, Lipton straight out of Columbia Law School, universally praised him Tuesday as a brilliant and hard-working takeover lawyer and expressed shock and dismay upon hearing the news.
"This whole thing is incredible and impossible to believe," said one Wall Street takeover expert who knows Reich well. "Ilan doesn't have that persona of the aggressive, money-hungry guy whose ego gets in the way. He toils in the vineyards. He clocks a lot of time behind the scenes. He's laid back, quiet, hard working. Things just don't add up here."
Pedowitz, likewise, characterized Reich as a "brilliant young lawyer who had enjoyed the confidence of the firm and its clients."
Reich was born in Brooklyn in 1954 and earned both his bachelor's degree and law degree from Columbia. Friends describe him as tall, good looking, prematurely gray and low-keyed. He is married and his wife is pregnant with the couple's third child.
It could not immediately be learned which of the 54 deals under SEC investigation were handled in part by Reich, how the SEC believes he figured into the illicit scheme or whether he profited financially. Wall Street sources expressed bewilderment at Reich's alleged involvement, saying they had heard he may not have profited financially from the scheme.
"The way it looks right now is that he might have unwittingly passed on some information," one takeover strategist said. "Anything more than that just doesn't seem possible."
Of the 15 deals listed by the SEC as directly involving Levine or his employer before 1985--when Wachtell, Lipton says Reich's alleged involvement ended--he is known to have participated in only one: The tumultuous takeover battle for Bendix in 1982.
And in that deal, as with virtually all others in which he participated, Reich is said to have played a relatively small strategic role but a large role in the documentation end of waging or fighting the takeover battles.
"He was not the front man--ever," said one takeover strategist who has worked with Reich.
Wachtell, Lipton, as one of the leading law firms in the competitive field of takeover law, is called on by one side or the other in virtually every major corporate takeover. Of the 54 deals that Levine is said to have profited from between June, 1980, and last December, Wachtell, Lipton was involved in at least 30.
Times staff writer Robert E. Dallos in New York contributed to this story.