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2 Insiders Seek Some Profits Back to Gain Big Tax Breaks

December 13, 1986|DEBRA WHITEFIELD | Times Staff Writer

NEW YORK — Pleading financial hardship, lawyers for confessed inside traders Dennis B. Levine and Ira Sokolow asked the Securities and Exchange Commission on Friday to return part of their forfeited illegal stock-trading profits by Dec. 31 so they can pay their 1986 taxes and qualify for big tax deductions that they would otherwise lose under tax reform.

Officials of the SEC, which has agreed to use part of the illegal profits to pay all claims on the money, including the defendants' taxes, reacted with disgust to the requests at a federal court hearing here for a speedier tax payment than the SEC has promised.

If Levine, the apparent ringleader of the largest known insider trading scheme in history, is allowed to pay his taxes with money he obtained illegally, "he is not being deprived of the ill-gotten gains, he is using them to offset income" and qualify for big tax writeoffs, commission lawyer Barry Goldsmith said.

Levine, who has pleaded guilty to four felony charges and paid the government $11.6 million--part of it in stocks and money from a liquidated company retirement plan--is now asking the government to spend about $7.5 million of that to pay his taxes and interest on back taxes.

Would Get Deductions

If the government pays the money this year, Levine would qualify for capital gains tax deductions, writeoffs available when interest is paid on back taxes, and state income tax deductions t1751217184next year, he could not claim the deductions even though they were incurred in the year before tax reform took effect.

A lawyer for Sokolow, who began serving a 366-day prison sentence a week ago, asked that his client's $24,000 state tax bill be paid by year-end so his wife and 2-year-old daughter have money from the resulting tax deduction to live on. He claimed that after turning over $120,000 to the government in illegal profits and penalties, the Sokolows have only a house, an old Buick and $10,000 in cash.

U.S. District Judge Richard Owen promised to review the requests and rule later.

In other developments Friday in the huge insider trading scandal:

- The New York Stock Exchange suspended Wall Street's biggest stock speculator, Ivan F. Boesky, from membership on the stock exchange. Boesky, who was charged by the SEC on Nov. 14 with having illegally made $50 million in profits, partly as a result of illegal tips from Levine, blasted the action as "precipitous and unwarranted."

Bristles at Furor

- The SEC, bristling at the growing public furor over the stock-sale deal that it cut with Boesky just before he was charged, labeled as "simply not credible" reports that Boesky was permitted to sell at least $1 billion in stock holdings during the last three months of his settlement negotiations with the government.

- White House spokesman Larry Speakes said an Economic Policy Council panel has been reviewing the problem of insider trading "since the Boesky scandal" and will report to President Reagan in January. The panel's focus, Speakes said, is "making absolutely certain the SEC has all the tools and funds it needs for strong regulation of the stock market."

At the New York Stock Exchange, officials said they delayed suspending Boesky because the SEC had given him permission to continue operating his business until April 1, 1988, or until his operations are fully liquidated, whichever occurs first.

They chose Friday as the suspension date, the officials said, because they had just been informed by the SEC that Boesky will liquidate his business "in several weeks."

But Boesky's lawyer, Harvey Pitt, questioned the validity of that statement.

"The orderly liquidation will continue and it will not take as long as next April," he said, "but I have no reason to believe that the New York Stock Exchange's information (about the liquidation occurring within several weeks) is accurate."

Meanwhile, the day after SEC officials disclosed to a congressional subcommittee that Boesky, while negotiating his settlement, was permitted to pay off $1.4 billion in debt carried by his principal investment fund, the agency maintained its silence on how much of that debt was pared through the sale of stock.

But an SEC official speaking anonymously indicated that earlier reports putting the value of such stock sales at $440 million are not far off the mark. And an SEC spokeswoman said estimates of $1 billion or more are far too high.

"To say that $1 billion could have changed hands in such a short period of time without the market noticing is simply not credible," spokeswoman Mary McCue said.

Rather, SEC sources said, the bulk of the $1.4-billion debt repayment was made by settling some of Boesky's huge commitments to buy, sell, borrow or lend securities at future dates.

Such settlements are not technically stock sales. But, observed several Wall Street traders and investment managers who accused the SEC on Friday of playing with semantics, it is still a stock liquidation.

Say, for example, Boesky borrowed stock for $12 a share in exchange for a letter of credit promising to return the stock later at a guaranteed price of $12.50 a share.

If, with the SEC's blessing, he returned the stock at the promised price, he tears up the letter of credit, and the debt is wiped off his books with no stock actually sold.

The new disclosures of the magnitude of Boesky's liquidations rekindled the furor from professional traders and lawmakers over what some view as the unfair advantage over other investors that Boesky received from the SEC when he was permitted to sell stock based on confidential information about his own insider trading case.

Even some former SEC enforcement officers have blasted the agency's action in private conversations with SEC officials, calling the deal a dangerous precedent.

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