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Congress Urged to Double Penalties for Inside Trading

April 23, 1987|Associated Press

WASHINGTON — The U.S. attorney prosecuting the Wall Street scandals urged Congress on Wednesday to double the penalty for insider trading and impose a mandatory jail sentence on brokers who lie to investigators.

U.S. Atty. Rudolph W. Giuliani of New York told the Senate Banking Committee that most of those accused thus far carefully analyzed their risk of jail and found it trifling in comparison with the millions in illicit profits that could be made.

Insider trading is the illegal use of non-public information to make money through the buying and selling of securities.

In the 50 years prior to 1984, Giuliani said, only 12 people were prosecuted for insider trading, with few, if any, going to prison. While that has changed, he said, insider trading still carries only a five-year maximum prison term. The potential profit is enormous, he said. He cited one case where a $3,000 investment turned into $430,000 overnight.

"Almost all of these people engaged in an analysis of the profits to be made against the consequences if they were caught," Giuliani said. "They calculated what they could gain against the chance they would be caught, and then the consequences if they were caught."

Based on the record before the current scandal, he said, "The message being sent was that there was a small risk of being caught and a very small chance of jail.

"If we can raise substantially the risk of being caught and the consequences of being caught, this is precisely the kind of criminal conduct that we can deter," he said. "A very, very effective message would be that as a general rule, if you're convicted of insider trading you're going to prison." The maximum five-year penalty "probably made sense at the time these statutes were passed. But in light of these cases that have been completed, the penalty is probably inadequate. The scope of the penalty for the judge (to impose) should be increased . . . to eight, nine, 10 years."

He also proposed a mandatory sentence of at least one to two years for "crimes against the system"--perjury or obstruction of justice.

"This is not just an isolated problem," Giuliani said. "Many of these people believe there's no additional penalty if they lie under oath while being questioned."

Giuliani and Gary G. Lynch, chief of enforcement for the Securities and Exchange Commission--the team that brought down inside traders Dennis B. Levine, Ivan F. Boesky and Martin E. Siegel in an investigation that has sent tremors through Wall Street--appeared before the Senate panel to report on the status of their inquiry.

They gave few hints how far their investigation would go or how long it would last, other than to say that more indictments were coming, and in more areas than the insider trading that has been the principal focus.

Both were reluctant to speak in specifics. When asked in general terms about collusion among investment bankers, institutional fund managers, arbitrageurs and corporate raiders, they huddled briefly then asked that their answer not be compelled at a public session. The question was dropped.

But both said the spreading scandal has surpassed earlier suspicions.

"There's no doubt that insider trading is a more substantial problem than we realized," Giuliani said.

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