Lawyer Indicted as Part of Levine Insider Trade Case

NEW YORK — Ilan K. Reich, the first lawyer to be drawn into the Dennis B. Levine insider trading scandal, was indicted Friday by a federal grand jury here on charges that he illegally tipped Levine to corporate takeovers before they were public knowledge.

Reich, who resigned his partnership in the New York law firm of Wachtell, Lipton, Rosen & Katz in July after learning that he was under government investigation, faces criminal fraud charges. If found guilty, he could be sentenced to as much as 10 years in prison and $101,000 in fines. He will be arraigned Thursday.

There was no answer at Reich’s home in Manhattan on Friday and his lawyer, Robert G. Morvillo, did not return phone calls.

It could not immediately be learned whether Reich has given testimony to the Justice Department. But sources said he is cooperating with the Securities and Exchange Commission. That agency also is investigating Reich’s role in the Levine scandal, the largest insider trading case ever prosecuted.

The SEC has not filed civil charges against Reich. And the sources said it now appears that the agency is close to reaching a resolution of the case with Reich.

Reich is the fourth defendant in the Levine case to face criminal charges. Levine, the former managing director of the Drexel Burnham Lambert investment banking firm, pleaded guilty in June to securities fraud, perjury and tax evasion but has not yet been sentenced.

He has also agreed to give up more than $11.5 million of the $12.6 million that the SEC said he made by illegally trading on confidential information.

Last month, former investment bankers Ira B. Sokolow and David S. Brown pleaded guilty to criminal fraud charges after admitting that they passed inside information to Levine. Both are scheduled to be sentenced Oct. 24.

The latest indictment charges that Reich, 32, passed inside information about pending corporate deals to Levine, who then traded shares of those stocks through secret foreign bank accounts and made profits of $742,819. Reich is charged neither with having traded stocks himself on inside information nor with having received payoffs from Levine for the tips. The government does allege that Reich arranged to share in the profits that Levine made from these tips but never actually received the money.

Charles Carberry, the assistant U.S. attorney here, said Levine made $613,503 from Reich’s information that the Searle family planned to sell its stake in G. D. Searle and another $129,316 after Reich tipped him to the pending acquisition of SFN by E. M. Warburg, Pincus.

Reich worked on both 1984 deals while he was an associate at Wachtell, Lipton, which is regarded as one of the nation’s leading corporate takeover law firms.

He is charged with one count of securities fraud in connection with the Searle deal and one count of mail fraud for passing stolen information about the SFN acquisition.

Lawrence Pedowitz, a Wachtell, Lipton, partner and spokesman, said the firm “cooperated closely” with the U.S. attorney and continues to cooperate with the SEC in the case.