WASHINGTON — A key Senate Democrat and a well-placed Republican pledged Sunday that Congress will conduct a thorough probe of the Wall Street insider trading scandal that will be aimed at protecting the rights of the average stockholder.
Sens. William Proxmire (D-Wis.) and Alfonse M. D'Amato (R-N.Y.) said that new laws with stiffer criminal penalties may be needed, as well as more enforcement officers for the Securities and Exchange Commission, to protect honest shareholders suffering losses in the scandal.
Both men appeared on ABC's "This Week With David Brinkley." Speaking on the same television show, New York Stock Exchange Chairman John J. Phelan Jr. urged that "more (public) disclosure and quicker disclosure" be required of companies facing takeovers to ensure greater fairness in the securities markets.
And SEC Chairman John S. R. Shad said that "a change in moral attitudes" has occurred. He termed it "shocking" that "so many of these cases (of illegal stock market practices) involve people in their early 30s . . . who are graduates of the best business schools and law schools.
"The temptation (of quick profits) is so great that many of them are willing to step across the line," Shad said.
Boesky to Be Called as Witness
Proxmire, who will become chairman of the Senate Banking, Housing and Urban Affairs Committee when the Democrats take over control of the Senate in January, said that millionaire stock speculator Ivan F. Boesky, the central figure of the unfolding scandal, will be called as a key witness at hearings before his committee.
Boesky on Nov. 14 agreed to forfeit $100 million in fines and trading profits and to plead guilty to a criminal charge growing out of his massive insider trading activities. He is cooperating with authorities seeking to make additional cases against persons who have used illicitly obtained non-public information to purchase the stocks of major takeover targets.
Proxmire said that the average stockholder loses when speculators are able to borrow funds through so-called junk bonds to traffic in the stocks of companies they believe to be candidates for a merger. He said he favors legislation to "make sure people who engage in takeovers use their own money" instead of borrowed funds.
D'Amato, who has served as chairman of the Banking committee's securities subcommittee, said there is "a basic need for reform (in securities laws) . . . to give stockholders additional protection" from harmful market practices.
More SEC investigators and stiffer prison sentences would help deter "the greed and avarice" now apparent in the securities market, D'Amato said.
"People should not simply be fined--that's not enough," he said.
Proxmire suggested new legislation to impose penalties not only on individual offenders but also on their firms on the ground that this would encourage a brokerage "to keep its people in line."
He said he was referring to a firm like Drexel Burnham Lambert Inc., the prime promoter of high-yield junk bonds and financier of deals exploited by Boesky.
It was Dennis B. Levine, an executive of Drexel, who pleaded guilty to insider trading last summer and put authorities on Boesky's trail.
Other congressional inquiries are being planned by the House Banking, Finance and Urban Affairs Committee, the House Energy and Commerce subcommittee on oversight and investigations, and the antitrust subcommittee of the Senate Judiciary Committee.
Shad defended a decision by the SEC to allow Boesky to sell off $440 million of his stocks before public announcement of the case against him, an action that prevented heavy losses in these securities.
Proxmire and some other congressional critics have said that the decision was questionable and would be looked into, but Shad, reiterating a statement that the SEC issued Friday, said the stocks were being managed by Boesky and were not owned by him or used to pay his obligations. The SEC's decision was meant to avoid precipitous sales of these stocks and thereby add to disruption of the market, which experienced a steep decline last week before it rallied Thursday. Shad flatly declined comment on the identity or number of additional inside traders who may be prosecuted.
Phelan said that Boesky had "a very elaborate network of people" but declined to speculate on its size or on how many more cases might be developed.