NEW YORK — Outrage was the reaction on Wall Street last month when three top financial executives were handcuffed and led away--like hapless bank tellers in a garden-variety embezzlement--to be booked on insider-trading charges.
It seemed an unnecessary humiliation for executives of Goldman, Sachs & Co. and Kidder, Peabody & Co.--an affront, even, to the dignity of Wall Street. Many were quick to lay the blame on Rudolph W. Giuliani, the federal prosecutor for Manhattan and a man with a known taste for crime-fighting in the public eye.
"The stunt had Rudy Giuliani written all over it," snorted a lawyer representing one insider-trading defendant.
'Every Bust a Miniseries'
"When they rush in like 'Miami Vice' to handcuff respected members of the financial community, it just shakes confidence in the market," said Phillip McBride Johnson, former chairman of the U.S. Commodities Futures Trading Commission. "These people can't resist those cameras; they have to make every bust a miniseries."
As it turned out, the decision to arrest and handcuff was made by postal inspectors investigating related mail-fraud charges. But the episode says much about the reputation of the man who has become the central figure in the investigation of Wall Street's biggest scandal.
In four years as U.S. attorney for Manhattan, Giuliani has made a name as a scourge of mobsters and corrupt politicians, as a publicity-seeker and as a prosecutorial zealot who, some say, treads too often on the rights of defendants. Naturally, he would be thought responsible for the arrests--and, naturally, he would respond combatively.
Keeps a High Profile
"The rules apply to mob big shots like Fat Tony Salerno, and they apply to big shots at Goldman, Sachs, too," said Giuliani, whose image before bristling microphones has become as regular a feature of the local evening news as the weather report.
These days, he is riding high. In the last four months, the former third-ranking official of the Justice Department has won two ground-breaking anti-Mafia trials and the major municipal-corruption case of Bronx Democratic boss Stanley M. Friedman.
This week, White House Chief of Staff Howard H. Baker Jr. and Atty. Gen. Edwin Meese III asked whether he would be interested in replacing John S. R. Shad as chairman of the Securities and Exchange Commission, sources said. He has also been mentioned as a possibility for FBI director, and political handicappers say that he may later have a good shot at becoming a U.S. senator or New York governor.
But first he must face what some believe is the most important test of his credibility--the insider-trading investigation, which, like some unkillable weed, wraps new tendrils week after week around the reputations of Wall Street executives and institutions. The SEC started this battle but it must be finished by Giuliani, his top lieutenants and his nine-lawyer securities-fraud staff.
It has been shaping up as a bitter battle. There has already been criticism of prosecutorial tactics and predictions that the government's record of 45 convictions in 46 insider-trading cases will soon be spoiled.
Officials of Goldman, Sachs insist that there is no foundation to insider-trading charges brought last month against Robert M. Freeman, one of the three handcuffed executives and head of the top-rated investment bank's takeover-stock trading operation.
Charges to Be Challenged
While most others accused in the 11-month-old investigation have settled charges, the Goldman, Sachs officials insist that they will fight charges against Freeman in court. Executives like Thomas Murphy, chairman of Capital Cities-ABC, have offered public testimonials to Freeman as the finest in his profession and as a family man of unimpeachable virtue.
The two other defendants charged last month, Richard B. Wigton of Kidder, Peabody, and Timothy Tabor, formerly of Kidder, say that they, too, will fight the charges.
"This is about the hundredth time I've been accused of going too far," Giuliani responded. "I'm getting a little less sensitive."
He believes insider-trading abuses are "systemic" on Wall Street and, as with street crime, takes a hard line on punishment. He wants penalties increased to a maximum of 20 years from the current five years and faults investment firms for their seeming reluctance to initiate internal investigations to uncover illegal trafficking in confidential information.
"We've got to bring a whole new ethic on Wall Street," he says. "That's what all this is about."
It is Friday night, and Giuliani is late for an appearance before an organization of Italian-American young adults called Fieri, or "the Proud Ones." Over the years, he has angered many in New York's Italian-American community, who feel that he has harped on the ethnic roots of the American mob to build a political career.
But when he slips through the door, a rumpled suit and nest of cowlicks betraying his fatigue, he is introduced in a reverent whisper. The jostling crowd claps violently.