2 Bankers Plead Guilty in Big Insider Trading Case

NEW YORK —  Two former investment bankers at major New York firms pleaded guilty today to criminal charges in the largest insider trading scheme ever uncovered, admitting that they funneled information to the scheme’s mastermind, Dennis Levine.

Ira B. Sokolow, 32, a former vice president at Shearson Lehman Brothers Inc., and David Brown, 31, who worked at Goldman, Sachs & Co., waived indictments and entered the guilty pleas as part of a deal with prosecutors who continue to probe illicit trading activity on Wall Street.

Terms of the plea bargains were not disclosed, but Assistant U.S. Atty. Charles Carberry, the chief prosecutor in the case, said both men are cooperating in the investigation.

Prison Terms Possible

Sokolow pleaded guilty to one count each of securities fraud and income tax evasion, while Brown admitted guilt on one count each of securities fraud and mail fraud. Each count carries a possible five-year prison sentence and $250,000 fine.

U.S. District Judge John F. Keenan set sentencing for Oct. 24. He allowed the men to remain free on their own recognizance until then, a move the prosecutors endorsed.

The two men appeared calm and subdued as they appeared before the judge, flanked by their attorneys.

Under questioning by Carberry, Sokolow admitted that in 1983 he tipped Levine that RCA Corp. was contemplating the sale of its CIT financial services subsidiary to Manufacturers Hanover Trust Co., and that in 1985 he gave Levine advance news about merger talks between Sperry Corp. and ITT Corp.

4 Charges Admitted

Levine, who pleaded guilty to four felony charges earlier this summer and also is cooperating with prosecutors, then used the news to trade the companies’ stocks to his advantage.

Levine made more than $12 million over a five-year period through trading in stocks based on information that was not available to the general public, according to federal officials. Such “insider trading” violates securities laws that are intended to protect investors who lack access to corporate secrets from being victimized by those who have access.

Sokolow did not trade in the stocks directly, but he profited from the scheme through direct cash payments from Levine, his attorney, Peter Fleming, told the judge.

$85,000 Paid in Cash

In pleading guilty to the tax evasion count Sokolow said he received about $85,000 in cash from Levine last year, money he did not report to the Internal Revenue Service. He did not say how much Levine paid him in prior years.

Brown admitted tipping Levine, through Sokolow, to proposals last year for a leveraged buy out of McGraw Edison and a merger offer by Internorth Inc. for Houston Natural Gas.

Prosecutors said Levine netted about $1.8 million in trades based on the information provided by Brown and $500,000 on the trades in which Sokolow admitted being the source of insider news.

Brown did not say in court what compensation, if any, he received from Levine, but Carberry said later that Brown shared in Levine’s payments to Sokolow.

Levine was a managing director of Drexel Burnham Lambert from early 1985 until he was charged earlier this year. Prior to joining Drexel he worked at Lehman Brothers Kuhn Loeb, which later became part of Shearson Lehman Brothers, and at Smith Barney, Harris Upham & Co.