WASHINGTON — Investors defrauded in a massive 1988 insider trading scheme may be entitled to compensation from $19 million in alleged illegal profit surrendered by one of the defendants, officials said Monday.
The Securities and Exchange Commission filed a proposed plan in a New York court for distributing the money allegedly obtained in what at the time was the second-largest insider trading case in U.S. history.
In 1988, the SEC accused Fred C. Lee, a Taiwanese national living in Hong Kong, and Stephen K. Wang, a junior analyst in the mergers department at Morgan Stanley & Co., of engaging in an insider trading scheme that allegedly netted Lee $19 million.
According to the SEC, Lee traded--for himself and at least 33 people who were not identified--with information he got from Wang.
Wang, who was 24 at the time, pleaded guilty in September, 1988, to one count each of securities, wire and mail fraud for taking about $200,000 to funnel confidential information to Lee about at least 25 takeover deals that Morgan Stanley was handling. There was no allegation of wrongdoing by Morgan Stanley, which suspended and later fired Wang. Wang was sentenced to eight months in prison.
Although he agreed to settle civil charges with the SEC without admitting or denying wrongdoing, Lee has not answered a criminal indictment stemming from the SEC investigation.
At the time the charges were filed, the case was second in size only to the $100-million settlement of disgraced stock speculator Ivan F. Boesky. Both have since been eclipsed by the settlements of Drexel Burnham Lambert Inc. and junk bond financier Michael Milken.
As part of his settlement last August, Lee agreed to pay $19 million into a fund to reimburse investors defrauded by the scheme. He also agreed to pay the government $1.5 million in fines and $4.5 million in back taxes with interest.
As of April 16, the receivership fund, plus accrued interest, totaled $20.3 million, according to the SEC.
In papers filed at federal court in Manhattan, the SEC proposed reimbursing investors who sold securities in 18 different companies on the same day the defendants bought those securities. The trades in question took place between July, 1987, and April, 1988.
The SEC said those wishing to comment or object to the plan should write to the court-appointed receiver, Margaret A. Bancroft, at the Manhattan law firm of Dechert Price & Rhoads, or to the SEC's chief litigation counsel, Thomas C. Newkirk, at 450 5th St. Northwest, Stop 4-2, Washington, D.C. 20549.
Securities of the following companies were involved: Utah Power & Light Co., Manpower Inc., Savannah Electric & Power, IC Industries Inc., E. F. Hutton Group, Outboard Marine Corp., Chi-Chi's, Richmond Hill Savings Bank, Catalyst Energy Corp., E-II Holdings Inc., Stanadyne Inc., American Standard, Federated Department Stores, Stop & Shop Cos., Firestone Tire & Rubber Co., Sabine Corp. and Staley Continental Inc.