Assistant U.S. attorneys quickly adapted to the new regime, some more comfortably than others. Many were invigorated by Giuliani’s approach. Others worried. Decisions were now invariably accompanied by discussions of how the press would react. References were made to the office’s new “cowboy” spirit. Coming from traditionalists, the term was mildly derogatory, implying a tendency to shoot first and ask questions later.
The fraud unit mirrored the changes in the office. The chief of the unit was Peter Romatowski, the prosecutor who had tried the Winans case, but Romatowski had already announced his resignation. His successor was a gruff, plain-speaking, overweight prosecutor named Charles Carberry.
Everyone in the office liked Carberry. He was smart, funny, and self-deprecating. His low-key professional approach and unquestioned integrity appealed to traditionalists. Like Giuliani, he was a product of Catholic schooling, and his view of crime and punishment was in keeping with his new boss’s attitude. Carberry had grown up in New York, dropped out of Colgate University, and eventually graduated from St. John’s University in Queens. He edited the law review at Fordham Law School, but was rejected when he first applied to the U.S. attorney’s office. He worked for a year at Skadden, Arps before being hired on his second try.
When he had first spoken to Lynch about the Bank Leu investigation, after Meier was subpoenaed, Carberry hadn’t been all that interested. Insider trading was not high on Giuliani’s list of priorities. Indeed, the size of the securities fraud unit had actually shrunk as Giuliani shifted assistants into organized crime prosecutions. Carberry, by and large, had been disappointed by the fruits of the office’s insider-trading cases. In a case involving a Morgan Stanley investment banker, a court of appeals had ruled that an investment banker or other fiduciary who leaks confidential information to someone else who actually does the trading is guilty of insider trading, and this had been a big step forward. But most of their convictions had been of what Carberry deemed “rogue” employees, mostly low-level printers and secretaries at law firms and investment banks. Carberry had mastered the securities laws and the markets to a degree unrivaled in the U.S. attorney’s office. He knew insider trading was rampant, but he thought enforcement was better left to the SEC.
The Bank Leu situation, however, had piqued his interest. This appeared to be a far more systematic breach of confidentiality, one that posed a more fundamental threat to the integrity of the market. Several weeks after meeting with the SEC, Harvey Pitt and his colleagues visited St. Andrews Plaza to discuss criminal aspects of the situation. Romatowski, Carberry, and the Bank Leu lawyers crowded into Romatowski’s office—soon to be inherited by Carberry—a room dominated by an old oak desk that has been handed down for years from one head of the unit to his successor. The prosecutors listened to Pitt and the SEC lawyers, then discussed the case with each other.
The prosecutors didn’t see many risks in giving the bank immunity, which was what Pitt wanted. They might be criticized, but they knew that without the bank’s cooperation, it could take years to determine the identity of the key customer—if, indeed, they would ever find it out. They had rarely had the opportunity to penetrate to the heart of an insider-trading scheme so quickly. And they were convinced, from what Pitt had told them, that the case against the customer would be far more important than any possible case against the bank. Giuliani authorized them to negotiate a grant of immunity, as did Justice Department officials in Washington. Carberry told Pitt and Lynch to go ahead with their agreement.
Negotiating the agreement between the bank and the SEC took months. The SEC insisted on a clause voiding the agreement if the bank failed, for whatever reason, to identify its customer. Pitt argued that the bank should be required only to make a “good faith” effort, and shouldn’t lose its immunity if ordered by Bahamas authorities not to disclose anything. The SEC ultimately prevailed.
Then the Diamond account trading records had to be reviewed and analyzed. Pitt had to be able to confirm the identity of Mr. X. After all, he knew the name was Dennis Levine, but he couldn’t be certain that it was the same Dennis Levine who worked as an investment banker at Drexel. At Rauch’s suggestion, Pitt’s staff conducted an extensive search for background information or a photo that would help confirm the customer’s identity, but came up with nothing conclusive. Pitt didn’t want to contact Drexel, for fear of alerting the firm to the investigation. Finally his staff obtained a copy of an old Lehman Brothers Yearbook with a photo of Levine. Pitt had his staff put together a photo “lineup,” including Levine’s photo with a series of other head shots. Pitt took the photos to the Bahamas, and had each bank employee with any contact with Levine look at them. “Can you identify Mr. Diamond?” he asked. Without exception, they pointed to the photo of Levine.
The SEC also wanted deposition testimony from Meier to strengthen any future case or injunctive action against Mr. X. Shaken since his subpoena at the Waldorf and by the intensifying investigation, worried about his relationship with Campbell and his own trading, Meier had arranged a transfer back to Switzerland. He was living in a suburb of Zurich. Pressed by Pitt for a written promise to testify, Meier was nervous. He said he’d consulted a lawyer of his own.
By the end of February, it was clear to Pitt that Meier, feeling secure in far-off Switzerland, was stalling. He finally gave him an ultimatum. “Look,” he said, “either you’re in this deal or not. We are cutting a deal with or without you.” Pitt reminded Meier that he was risking the loss of immunity. Meier remained evasive, but then had his lawyer call. Meier was backing out.
The Fried, Frank lawyers were initially dumbfounded. Why would Meier abandon the deal when he was being offered immunity for a day or two of testimony? The answer seemed to lie in the mysterious wire transfer of $5,000 to a Catskill bank he’d had Pletscher expunge from his account records. The money, it turned out, was paid to a carpenter in tiny Delhi, N.Y., who did work on some buildings owned by Kevin Barry. It appeared to link Meier to BCM, and the additional trading of Campbell and Barry—all matters that were not covered by Bank Leu’s immunity grant, and which Meier had never disclosed to Pitt. Meier had never seemed fully to trust the American lawyers or the American judicial system in which they functioned.
Fortunately, Pletscher, now based in London, was lined up as a substitute. Lynch finally forced a conclusion of the negotiations, saying he wanted to “stop this fascination with the process” and get the deal done. The agreement was signed at 10 P.M. on March 19. It called for the bank records to be turned over shortly thereafter, and for Pletscher’s testimony in two weeks.
Carberry and SEC lawyers Wang, Sonnenthal, and Fischer flew to London, where they met Pletscher at Fried, Frank’s London office. Pletscher testified for two full days, and proved to be far more forthright than the evasive and secretive Meier probably would have been. He described in detail “Mr. Diamond” ’s obsession with secrecy, the manner in which he opened his account, the creation of the Panamanian corporation, the trading that preceded takeover bids, the cash withdrawals, and the shredding of the incriminating documents. Pletscher, an accountant by training, proved to have a precise memory. Though he never revealed Mr. Diamond’s true name, referring to him only as “Mr. X,” Pletscher said he was an investment banker living in New York City. The SEC had what it wanted, and even Carberry was impressed by the rapid progress of the case.
Now all that remained was the revelation of Mr. X’s identity. Pitt turned his attention to the Bahamian secrecy issue. Much as it might like to, Bank Leu couldn’t simply turn over Levine’s name. Levine had threatened to sue them if they ever took that course; the bank also risked prosecution by Bahamas authorities.
The Fried, Frank lawyers settled on a bold strategy: they would approach Bahamian attorney general Paul Adderly directly, avoiding the publicity and delays of seeking a court order. On May 7, a delegation from the SEC and the Justice Department, along with the U.S. ambassador to the Bahamas, and Pitt, Rauch, and their Bahamian lawyers
arrived for an audience. Adderly seemed impressed by the presence of high-level representatives of the U.S. government, but angered Pitt by excluding him and Rauch from the proceedings.
Nonetheless, the approach they’d agreed upon seemed to make an impression. Lynch argued that the disclosure of securities trading records was not technically a revelation of “banking transactions” within the meaning of the Bahamian secrecy statute. The argument distinguishing stocks from other deposits and withdrawals seemed somewhat tortuous, but it had the crucial backing of Bank Leu itself. The attorney general indicated his tentative agreement. “This isn’t banking, it’s brokerage,” he said, and Lynch eagerly agreed.
Two days later, Pitt received a copy of a letter containing the attorney general’s opinion that to divulge the identity of the bank’s customer would not risk prosecution by Bahamas authorities. Bank Leu’s directors met and passed a resolution authorizing the disclosure.
The pieces were now all in place. On Friday, May 9, 1986, Pitt picked up the phone and called Lynch, who got on the phone immediately. Pitt didn’t waste time with any preliminaries.
“Moby Dick,” he said, “is Dennis B. Levine.”
On Friday, May 9, 1986, just hours after his name passed from Pitt to Lynch, Levine arrived at the Gulf + Western tower in Manhattan for a gala buffet dinner and preview screening of the new Paramount production Top Gun, starring Tom Cruise. He had been invited because he’d helped represent Esquire Inc. in its acquisition by Gulf + Western. (Indeed, he’d traded on inside information in that deal.)
Ordinarily, this was the kind of glamorous event Levine loved, an exclusive gathering that underscored his own access to the rich and powerful and gave him the opportunity to schmooze with a corporate chieftain like Martin Davis. This evening, however, Levine was preoccupied with his increasingly troublesome dealings with Bank Leu. The day before, he’d phoned Pletscher, who had not taken his call; he’d been handed over to a lower-level employee, Andrew Sweeting.
“I want to transfer $10 million of my account to a bank in the Cayman Islands,” Levine said.
Sweeting rambled, saying he really wasn’t sure about the procedures for such a large transfer. Levine, irritated, said he’d have his Bahamian lawyer contact him with instructions. When Levine called again with the instructions, Sweeting insisted on having them in writing. That was it. Levine decided he had had it with Bank Leu. He vowed to get the written withdrawal order to the bank first thing Monday, and stop dealing with the increasingly uncooperative Swiss bankers.
Levine’s request hadn’t taken the Fried, Frank lawyers or the bank entirely by surprise. When Levine’s call was transferred to Sweeting, Pitt and Rauch were standing right behind the young banker. They’d given him orders to stall if Levine tried to withdraw any money.
For months now, it had been obvious that Levine was becoming apprehensive over the continuation of the SEC investigation and the failure of his bankers at Bank Leu to derail the inquiry. He had also been telling Pletscher about a new scheme he had hatched, what Levine called his “genius plan.” Pletscher hadn’t quite followed the details, but Levine’s creation seemed to resemble a mutual fund. Levine would raise money, divide it into numerous accounts managed by a Swiss banker, then have all the accounts trade on inside information he furnished. The “genius” of the plan, Levine asserted, was that it would provide the multiple accounts necessary to convince the SEC that the trading was being orchestrated by a bank employee who was a shrewd stock picker, rather than an insider trader. Lately, Levine had also been strongly hinting that the “genius plan” might have to be executed at a bank other than Bank Leu.
Now, almost with a sixth sense, Levine had decided to take his money just as the government investigation was about to come to a climax. With the revelation of Mr. X’s identity, and the news that Levine was trying to withdraw his money, Lynch knew that he and the U.S. attorney’s office had no time to waste. They couldn’t let the $10 million out of the Bahamas, or they might lose it forever.
Lynch called Carberry, who in turn roused Thomas Doonan, an investigator and special deputy U.S. marshal assigned to the fraud unit. Doonan, in his late 40s, looks like an amateur boxer. Seven of his relatives work in law enforcement. He and the lawyers worked around the clock over the weekend, drafting civil injunction petitions to freeze Levine’s assets, preparing an arrest warrant. For simplicity, the warrant focused on obstruction of justice only, since the government had the strong testimony of Pletscher providing probable cause for an arrest. The lawyers briefed Doonan, who in turn signed a sworn affidavit setting out the facts in the case.
On Monday, May 12, Levine’s written demand to transfer the $10 million arrived at Bank Leu, and the SEC promptly filed injunction papers. The bank retained the money. Carberry and Doonan went before a federal magistrate, who signed the arrest warrant. Doonan, accompanied by Augie Kaufman, a six-foot eight-inch federal marshal, immediately left in search of Levine.
The pair went first to the Levine apartment on Park Avenue. Laurie answered the door, turning pale when Doonan identified himself and Kaufman as representatives of the Department of Justice. Levine had already left for the day, his wife said, but she promised to reach him and have him contact the U.S. attorney’s office.
Quickly, the men left for Drexel’s offices downtown, but Levine wasn’t there either. He was, the marshals were told, meeting with Drexel client Ronald Perelman at Perelman’s town house offices in midtown. But Perelman’s office said Levine hadn’t shown up for the meeting. Doonan returned to St. Andrews Plaza. Perhaps Levine’s wife had warned him. Levine’s name was immediately fed into computerized lists maintained by U.S. Customs. Should he try to flee the country, he would be restrained.
Events now moved at a fast pace. At 2 P.M., Lynch placed a courtesy call to Fred Joseph, whose secretary told him the SEC enforcement chief was on the line and it was urgent. Joseph listened in silence for about 10 minutes as Lynch revealed that, in the SEC’s view, Levine had traded massively on inside information stolen from Drexel and others. Levine had apparently assembled a ring and bought information from other investment bankers, Lynch said. The SEC would be filing its charges and a request for an injunction momentarily, Lynch continued, adding that criminal charges were likely to follow as soon as Levine was apprehended.
Joseph was stunned. “Gary, it sounds like you’ve got him,” he said. “If he did it, it’s awful. What can I do? We’ll cooperate totally.”
At Lynch’s request, Joseph ordered Levine’s office, desk, and files sealed. Joseph immediately called Kay. “They’re about to arrest Dennis,” he told Levine’s stunned mentor. Kay called Perelman’s office, and also learned that Levine had never shown up for the meeting. John Shad, the SEC chairman, called Joseph soon thereafter.
“I’m sorry it’s your guy,” Shad said.
“Don’t apologize,” Joseph replied. “This is your job. We’ve often speculated that something like this could be going on and no one would ever detect it.”
And then the news broke. At precisely 2:46 P.M., bells rang and tickers clattered into action in brokerage firms, trading floors, and newsrooms across America, as the headline appeared.
Levine surfaced briefly later that afternoon, calling Kay from a pay phone. He had to shout to be heard over the traffic.
“Dennis, they’re looking for you,” Kay said, his mind racing with questions.
“I know, I know,” Levine shouted. “It’s all a big misunderstanding. They’re trying to fuck me over, ruin me. I haven’t had any chance to explain. I haven’t done a thing wrong.”
“Dennis, shut up, stop talking,” Kay advised. “You’ve got to get a lawyer.”
“Who?” Levine shouted. Pitt was obviously out of the question.
Kay ticked off the names of Flom, Lipton, and Arthur Liman (of Paul, Weiss, Rifkind, Wharton & Garrison), whom he knew from takeover circles. As soon as Levine hung up, Kay called Joseph. “Dennis says it’s all a misunderstanding,” he said.<
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“He’s full of shit,” Joseph replied.
Doonan and Carberry were still in their offices about 5:30 that evening when Doonan’s phone rang.
“Uh, this is Dennis Levine. I believe you’re looking for me, and I think it would be a good idea if we met,” Levine said, sounding remarkably unruffled given the magnitude of his plight. “I gather you have a subpoena for me, or something,” Levine added.
Doonan urged Levine to meet him at St. Andrews Plaza as soon as possible. Despite the announcement of the SEC action, Levine had planned to attend a charity ball to benefit Mt. Sinai Hospital that evening, but agreed he’d stop by the U.S. attorney’s office.
Levine drove down alone, in the BMW rather than in the even more conspicuous Testarossa, and parked the car on the nearly deserted street outside the office. At 7:30 P.M. he signed his name at the entrance.
Doonan met him at the sixth-floor reception area and escorted him to Carberry, who was seated behind the large desk in his office. Peter Sonnenthal, the SEC lawyer, had come up from Washington, and stood nearby. In contrast to the typically rumpled attire worn by Carberry, Doonan, and Sonnenthal, Levine was dressed in a stylish dark European suit, a yellow Hermès tie, and black Gucci loafers. He smiled ingratiatingly and tried to shake hands with Carberry as though he were being introduced to a prospective client.
Doonan quickly cut him off. “I have a warrant for your arrest,” he said. “Mr. Levine, you’re under arrest.”
“You have the right to remain silent,” Carberry began as Levine, stunned, turned ashen. Doonan ordered him to lean forward and put both hands flat on Carberry’s desk, and Levine obeyed mechanically. Doonan frisked him, and told him to empty his pockets. Then Carberry displayed a few Bank Leu documents on the desk containing Levine’s signature, and motioned for Levine to look at them. Levine saw then that, contrary to his instructions, Meier and Pletscher had not destroyed all the documents connecting him to the account.
Den of Thieves Page 33