NEW YORK — Federal securities regulators Wednesday charged a top mergers specialist at the Merrill Lynch investment firm and a prominent Israeli businessman with operating a scheme to profit from secret information about Merrill Lynch merger deals.
The two men made nearly $4.2 million in illicit profits by trading in stock or options of at least 12 companies from October, 1984, through May 16, 1986, the Securities and Exchange Commission alleged in court papers.
The two defendants are Nahum Vaskevitch, 36, a dual citizen of Israel and Britain who since 1981 has been managing director in charge of the London mergers and acquisitions office of Merrill Lynch, and David Sofer, 46, an Israeli citizen who is a leading Jerusalem real estate and oil investor and a business associate of Vaskevitch.
According to the SEC, Sofer frequently telephoned Vaskevitch to elicit information about takeover deals in which Merrill Lynch was involved. He then traded the stocks in question through accounts nominally owned by two investment companies he controlled. The companies also are named as defendants in the SEC case.
To what extent Vaskevitch profited from the scheme is not clear from the SEC's allegations. The agency alleged that Vaskevitch at one point had transferred $250,000 into the account of one of the companies, Plenmeer Ltd., giving him a financial interest in the illicit trading, and subsequently received the same sum back. However, all of the trading was handled by Sofer, the SEC contends.
The SEC, which obtained a court order Wednesday temporarily freezing the defendants' assets in the United States, is asking that Sofer and Vaskevitch be ordered to return their $4.2 million in illicit gains as well as up to three times that amount in civil damages.
Although the defendants are outside the country, SEC sources said that they have significant assets within U.S. borders that could be used to satisfy the commission's claim. Still, the defendants may be able to otherwise evade the jurisdiction of U.S. courts, the SEC said. A federal court hearing on the freeze order is scheduled for March 20. The case is the first time that Merrill Lynch Pierce Fenner & Smith Inc., the nation's largest brokerage firm, has been drawn into Wall Street's expanding insider-trading scandal. The latest charges appear to be unrelated to the cases of stock speculator Ivan F. Boesky and his associates, who have identified executives at several other prominent investment firms as participants in a massive insider-trading ring.
Merrill Lynch, in a statement issued from its headquarters here, said it suspended Vaskevitch on Wednesday morning "when we were informed of the specific allegations and evidence in this case." The firm noted that the allegedly illicit trading had been done through other brokerage houses. Vaskevitch joined Merrill Lynch in 1981 from Hill Samuel Group, a London merchant bank.
Vaskevitch and Sofer, who is reportedly the owner of the Jerusalem Hilton Hotel, among other properties, could not be reached for comment Wednesday.
Two of Sofer's associates also are named by the SEC as having possibly profited from the illegal trading but are not charged with any legal violations.
One is Louis H. Barnett, a Fort Worth, Tex., oilman and investor who allegedly maintained a securities account in which Sofer directed trades in return for a share of the profits. The other, Michael G. Jesselson, a New York commodities executive, allegedly made more than $422,000 on two stocks recommended by Sofer, who reportedly had a profit-sharing arrangement on the trades. Neither Barnett nor Jesselson has been asked by the SEC to give up any profits.
Through a lawyer, Jesselson refused to comment except to note that he was not charged with any wrongdoing. Barnett could not be reached for comment.
The SEC charges raise questions about the freedom with which Merrill Lynch merger specialists passed confidential information among themselves. Vaskevitch, the commission said, had been "entitled to know about . . . almost all mergers and acquisitions matters handled by Merrill Lynch," including those in which he played no direct role.
A spokesman for the firm defended that practice, arguing, "That's normal good business, to give the maximum number of people input." Although acknowledging that some firms leery of insider trading have moved to limit the accessibility of secret information, he said that Vaskevitch was so highly placed that he would have been apprised of almost all deals in any event. "This guy was the head of our mergers and acquisitions office in London," he noted.