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Civics Lesson Emerges From Insider Case


The U.S. District Court in New York on Thursday put off until next Tuesday consideration of the government's curious request to dismiss its own indictment of three important Wall Street executives on insider trading charges.

Prosecutors from the U.S. Attorney's office requested the dismissal because they were not ready to go to trial, but the government didn't admit that it had made a mistake. Rather, the prosecutors said they want time to prepare a case against the three accused men based on charges broader than the indictment for trading on inside information.

And maybe they can bring that broader case. But by arresting and charging the three men, and then asking that the indictment be dismissed, the government has weakened its case.

Emotion Not Enough

The government's request for dismissal doesn't necessarily mean that the three accused are innocent of the charges--although, like any citizens, they are presumed innocent until proven guilty. Nor do the events in New York mean that the federal government doesn't have an overall case against stock manipulation occurring in the corporate takeover wave of recent years. Several prominent Wall Streeters have pleaded guilty to charges of violating the securities laws, and future charges and trials are a certainty.

But the government has shown that emotion, which has been running high against white-collar crime on Wall Street, is not enough to put people in jail in our society. Unwittingly, the government has given everybody a good civics lesson on how our laws work to protect the individual.

The three accused--Robert M. Freeman, head of arbitrage for Goldman, Sachs; Richard B. Wigton, who held the same position at Kidder, Peabody, and Timothy L. Tabor, an arbitrage trader at Kidder and at Merrill Lynch--were arrested in February, two of them led from their offices in handcuffs.

The charge against them, of profiting from information to which the broad investing public was not yet privy, is a serious one. Such trading distorts stock prices and imperils the integrity of the capital markets on which much in our society, such as jobs and pensions, depend. Moreover, the arrests came in an atmosphere of retribution on Wall Street, with U.S. Attorney Rudolph W. Giuliani gaining widespread publicity as an avenging angel.

Prominent Wall Street traders, such as stock speculator Ivan F. Boesky and merger and acquisition specialist Martin A. Siegel, had already pleaded guilty to trading abuses. Boyd L. Jefferies, the head of a Los Angeles securities firm, was later to do the same. The government was winning all before it.

But the men arrested in February--Freeman, Wigton and Tabor--did not plead guilty. They demanded a trial, as is every citizen's right under a legal system that dates to 13th Century England, when nobles forced King John to sign the Magna Charta.

Dropped the Ball

Then, when the trial date came up this week, the prosecutors admitted that if they proceeded on the evidence they had gathered, they would lose the case. In fact, details of the charges, released after the three arrests, showed that some of what the government alleged was "insider trading" occurred two days after the information was broadly public. It is pretty hard to be an insider on information that appears in the newspapers.

So the Justice Department has dropped the ball on this one. But does that mean its lawyers are whistling Dixie when they speak of a broader case? Don't bet on it. The investigations now being pursued in Washington by both the Securities and Exchange Commission and the Justice Department are into evidence that some of the stock activity involved in corporate takeovers of recent years represented illegal manipulation of stock prices to destabilize major corporations.

The SEC, to its credit, does not advertise the details of its investigations. But outgoing SEC Chairman John S. R. Shad testified to Congress on Wednesday that significant cases would be brought this summer. "I think you will see a succession of shoes dropping through the summer," Shad said. "There are new discoveries going forward. They lead beyond insider trading in some cases."

One target of those investigations is widely believed to be the the high-yield, or "junk bond," operations of Drexel Burnham Lambert, and of that operation's boss, Michael Milken. But Milken, too, as is certainly his right, is preparing to defend himself in case specific charges are brought. He has retained the powerful Washington attorney Edward Bennett Williams and appears to be saying to the government, in effect: "If you have charges, bring them, and let's go to court."

Which is fine. If some of the hectic trading that has aroused public uneasiness in recent years was also illegal, it should and will be prosecuted. The courts will do their job if the prosecutors do theirs. But meanwhile, in our public anger about wealthy stock manipulators, it is a good idea to remember that the right to trial by jury--ensured by the Sixth and Seventh Amendments to the Constitution we celebrate this year--protects rich and poor alike, and protects us all.

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