“There was literally an inundation of information about these companies,” Liman insisted. Levine remained silent.
Federal Judge Richard Owen made short shrift of Liman’s arguments. “It is quite clear,” he said, “that being at the shoulder of people who are making the decisions is a vastly different story than being in a position to read 13-Ds or The Wall Street Journal.” He upheld the freeze of Levine’s assets. The SEC had won its first major battle.
Liman called Carberry the next day, saying he wanted to meet in his office on Saturday, a time when the visit wouldn’t be conspicuous. Carberry wasn’t surprised. He assumed Liman would be trying to cut a deal, a plea bargain. Carberry thought that Levine was “dead” on possible tax evasion and perjury charges, not to mention insider trading.
Liman and Flumenbaum arrived on Saturday and met Carberry on the sixth floor. Despite Levine’s boasts to Wilkis, Liman said Levine was prepared to plead if a deal could be worked out. He said Levine had information worth negotiating for: the identities of four other young investment bankers who participated directly in the insider-trading ring, as well as one other person “who’s bigger,” he said.
Carberry wasn’t surprised. The trading patterns indicated that Levine must have had sources at other investment banks. The Wall Street Journal had published an analysis of Levine’s deals, revealing a preponderance of transactions involving Lazard Frères and Goldman, Sachs. Carberry even thought he knew the name of one of the conspirators. He had gotten a call from Lawrence Pedowitz, a Wachtell partner who was a former head of the criminal division, who said he was representing Lazard Frères.
“We had a guy here named Robert Wilkis,” Pedowitz said. “He was a close friend of Dennis Levine’s. Dennis called him all the time. If there’s a leak, he may be it.”
Liman indicated that the four conspirators would be relatively straightforward cases involving direct tipping and sharing of profits, although Levine did not know the name of one of them. The lawyer also indicated that while the identity of the “bigger fish” would be immensely valuable to the government, he couldn’t promise that Levine’s testimony would result in his conviction.
Carberry was typically expressionless, displaying no great curiosity about the fifth man. And he wasn’t interested in bargaining, preferring to lay his cards out on the table. He offered the Paul, Weiss lawyers a guilty plea of four felonies: one securities fraud count of insider trading, one perjury count, and two counts of tax evasion. In return, he expected full cooperation. He felt he was giving up almost nothing. With four felonies, the maximum jail term would be 20 years. Even if this was the largest insider-trading case ever, no one had ever been sentenced to as much as 20 years, no matter how many counts were involved. Cooperation would be in Levine’s interest; it would be his main argument for leniency at sentencing.
After little more than an hour, Carberry and Liman had an agreement in principle. They went up to Giuliani’s office, and Liman made what Carberry deemed a “hazy” proffer: the names of Levine’s immediate co-conspirators and “an arbitrageur of some substance.” They all shook hands on the agreement. But Liman wouldn’t name names yet, nor actually provide Levine’s cooperation, until he was sure Levine also had an agreement with the SEC. The moment Carberry heard that the bigger fish was a prominent arbitrageur, however, he had a pretty good idea of his identity: the name of Ivan Boesky was prominent in the pages of Levine’s pocket calendar.
An SEC agreement soon followed. In a series of phone calls and meetings, mostly between Flumenbaum and Sturc, who had been law school classmates, the SEC demanded most of Levine’s assets. They agreed he could keep the Park Avenue co-op, the BMW but not the Ferrari, and, after considerable argument, the Citibank account. Levine had been adamant that he still had to have some “walking-around money.” Most of that, the SEC lawyers assumed, would go for legal fees. The SEC agreement was contingent on Levine’s cooperation with the U.S. attorney. Lynch expected the four members of the ring, but not much else; references to a more important person were still vague allusions.
Now all that remained was for Levine to deliver on his part of the bargain. When he arrived at St. Andrews Plaza with Flumenbaum, he was greeted by the government team: Robert Paschall, a postal inspector assigned to the case, Carberry and Doonan from the U.S. attorney’s office, and Sonnenthal and Wang representing the SEC.
Carberry, instead of intimidating Levine, tried to make him feel like a member of the government team. He maintained a certain formality, always calling him “Mr. Levine” and emphasizing that he was trying to help Levine now. If he told the complete truth, Carberry said, it would impress the judge at his sentencing.
Carberry began the questioning by asking about Wilkis, and Levine seemed to hold nothing back, beginning with their first meeting at Citibank. Carberry was pleased that Levine made no attempt to minimize his own guilt: he freely admitted that he had been the one who lured Wilkis into the scheme, and said he’d also recruited Sokolow and Reich. He had a “sixth sense,” Levine said, for knowing who would cooperate. Carberry was also impressed that Levine volunteered that Reich had refused his offers of money, and had dropped out of the scheme after he became a partner in the firm. Carberry didn’t want a witness so eager to please the prosecutors that he’d exaggerate the culpability of others.
Levine told them about Cecola, noting that he’d gone “crazy” when he learned that Cecola had also opened an account at Bank Leu. He told the lawyers about the nighttime sweeps through Lazard Frères, and his and Wilkis’s efforts to plant stories with the Chicago Tribune and The New York Times. Levine said he knew Sokolow had recruited a source at Goldman, Sachs—“Goldie”—someone who didn’t work directly in M&A but in mortgages, he thought. Levine had never learned his name.
Then Carberry steered the interrogation to the unnamed arbitrageur, and Levine quickly confirmed their suspicions. He said he’d begun by mailing Ivan Boesky confidential documents on Boise Cascade and Elf Aquitaine, partly to try to push up the stock price, and partly to impress Boesky. Then he followed up with a phone call, openly offering a tip, and inviting Boesky for a drink, over which they worked out their tipping and compensation arrangement. Levine said he had been desperate to get to know Boesky both for the cachet and for the information.
Levine’s lawyers had been careful not to overpromise with respect to the evidence Levine could give on Boesky. They never claimed it would be an easy case, or that Levine’s evidence alone would produce a conviction. Carberry was impressed by Levine’s apparent candor, however. The compensation agreement with Boesky, involving shifting percentages depending on the timing and effect of the information Levine passed, was too detailed for Levine to have fabricated it. It had inherent credibility, especially if Levine’s tips could be matched with Boesky’s trading records.
Carberry usually didn’t concern himself with motives, but he couldn’t resist asking Levine why he’d done what he did. Levine gave the same answer he’d often given Wilkis: that he wanted to start his own firm, to be an arbitrageur or merchant banker, hiring the “professionals” to serve him rather than being one himself. He’d wanted $20 million, he told the government lawyers; he’d intended to quit once he got it.
Levine also said that he, like Wilkis, Reich, and Sokolow, was bored with his work as an investment banker. This made an impression on the lawyers, who, like most everyone else at the time, had come to believe that investment bankers led glamorous, rich, exciting lives. The reality, Levine said, was far different. By contrast, insider trading was thrilling. Carberry doubted that Levine would ever have stopped, no matter how many millions he had earned. Once he’d reached $20 million he would have raised the ante to $30 million, then $40 million. There would never have been enough.
Levine’s need for excitement and adventure, Carberry realized, made him a good candidate for undercover work. Despite his claims to Wilkis that he’d never cooperate, Levine seemed eager to help the government ensnare his fellow consp
irators. Before they could begin, however, there was a brief period of anxiety after Carberry received a written death threat against Levine. This was more excitement than Levine had bargained for, and he had to be whisked into the countryside under federal protection. The threat was quickly traced to a known crank. Levine returned to the city and agreed to place phone calls to Wilkis, Reich, Sokolow, and Boesky, and to have the conversations secretly recorded.
On Monday evening, June 2, just a few days after the conversation in which Levine had told Wilkis he “loved him like a brother,” Wilkis got a call from Levine.
“Bob, you should cooperate,” Levine began, and Wilkis knew immediately from Levine’s voice that something had changed. “I know we’re fighters,” Levine continued. “But they know everything. Tell your lawyers to come in.”
Wilkis was sure the conversation was being taped, and knew he should hang up and call his lawyer immediately. Yet he couldn’t. He realized that on some level he still thought Levine would protect him, get him out of this mess unscathed. He talked and incriminated himself.
Levine didn’t fare as well in his other calls. He called Boesky twice. The first time, Boesky sounded concerned but acknowledged nothing. “I’m sorry for your family,” Boesky said. “I’m worried about your mental health. Remember, all things will pass.” At the second call, Boesky hung up when Levine identified himself, saying they had no reason to be talking. Sokolow and Reich also hung up almost immediately. But the calls served a purpose; they put the suspects on notice that their identities were probably known to the government.
The very next day a lawyer for Sokolow called and began negotiating a plea. So, too, did a lawyer for David Brown, the Goldman, Sachs investment banker. Sokolow quickly confirmed that Brown, a close friend of his from Wharton business school, was “Goldie,” the source he’d recruited at Goldman, Sachs. Each agreed to plead guilty to two felonies and pay substantial penalties to the SEC. Sokolow was later sentenced to a year and a day in prison; Brown was sentenced to 30 days.
Several days later, Wilkis was at home, still agonizing, when his apartment buzzer rang. “Mr. Randy is here to see you,” the doorman announced. Wilkis knew it was Cecola and, despite his lawyer’s advice, he went down to meet him. The two walked into Riverside Park. Cecola seemed overwrought.
“Randy, you should get a lawyer,” Wilkis said, remembering with some bitterness how Levine had given him the opposite advice.
“There’s something I never told you,” Cecola said, obviously upset, “something about my girlfriend.”
“Don’t tell me,” Wilkis insisted. “I don’t want to hear.” Cecola stopped. “You’ve got to be careful about what you say,” Wilkis said. “They’re taping conversations. The next time I call you on the phone, they may be taping.”
“I’m going to Alan MacFarland at Lazard,” Cecola continued. (MacFarland was a senior partner at the firm.) “I’m going to tell him I just went innocently to you for help on deals,” he said, then paused to gauge Wilkis’s reaction. “I’m not going to paint you in the best light.”
Wilkis felt crushed, abandoned. “Do what you think you have to do,” he said. “I’m dead anyway.”
On June 5, with the government lawyers satisfied he’d given them all he could, Levine appeared in federal court and entered a plea of guilty to the four felony counts. The courtroom was packed with reporters, and television crews lined the stairs outside. Wearing a dark suit, Levine seemed calm and slightly thinner. He showed no emotion as he read a statement prepared by his lawyers.
“To contest the charges against me on technical grounds would serve only to prolong the suffering of my family. It would also convey the wrong message. I have violated the law and I have remorse for my conduct, not excuses.” Levine’s SEC agreement was made public; he agreed to disgorge $11.6 million, leaving him little more than his apartment and car, he claimed, and was permanently barred from the securities industry.
Wilkis was at his office at E. F. Hutton when he saw the news of Levine’s plea. It seemed like his death knell, confirming his worst fears that Levine had turned against him. He rushed to Naftalis’s office, begging the lawyer to work out a deal with the government. But Wilkis’s procrastination had cost him what little leverage he might once have had. With the Levine deal in place, Wilkis had little to offer the government. Even though he considered himself far less culpable than Levine, Wilkis was given a take-it-or-leave-it plea offer of four felonies, the same as Levine. Naftalis told him he had little choice but to accept it, then try to impress the government with the level of his cooperation. Wilkis capitulated, and Naftalis accompanied him to St. Andrews Plaza. Wilkis wept in Carberry’s office as he recounted his descent into insider trading.
Wilkis’s principal value to the government was his potential ability to corroborate Levine’s allegations about Boesky and Reich and to implicate Cecola. At Naftalis’s behest, Wilkis had painstakingly reconstructed everything Levine had ever told him about “the Russian” and “Wally.” Although Wilkis had never known their names, his memory, as Levine had feared, proved phenomenal, and the government seemed impressed. Wilkis corroborated key aspects of Levine’s story.
Wilkis also dutifully went to Carberry’s office and placed a recorded call to Cecola at his office at Dillon, Read. Not surprisingly, given the warning Wilkis had already given Cecola, the call produced nothing useful for the government. It was all too obvious that Wilkis had tipped Cecola, and Carberry was furious when he called Naftalis after the session.
“You idiot,” Naftalis yelled at Wilkis. “You’re trying to protect that kid. Don’t you realize, they’ll add four to five years to your sentence for that. You could lose the whole deal. Carberry hates you now. It’s not good.”
Barry Goldsmith, the government investigator working with Wilkis, told him the next day, “Carberry wants to kill you.” Carberry told Wilkis he was nothing but a “commodity” to him, and he’d just devalued himself. “I know the difference between chicken salad and chicken shit,” Carberry said. “What you’ve given me is chicken shit.”
Wilkis nearly panicked, but reached again into his memory to make up for the damage. Cecola had once told Wilkis about trading in his girlfriend’s name. Wilkis remembered her name and tracked her down at her job with People Express in Orlando. Wilkis took the information to Carberry as a peace offering.
“I’m sorry about the tape,” he said ruefully. Two days later, the government obtained the girlfriend’s trading records, and saw that Cecola had used her account for his insider trading. Confronted with the evidence, Cecola agreed to plead guilty to one count of tax evasion for failing to report his insider-trading profits, and settled the SEC charges, disgorging $21,800. He was sentenced to six years’ probation. Harvard Business School suspended him with the right to reapply.
In July, Wilkis pleaded guilty to four felonies and settled the SEC’s charges. He agreed to disgorge $3.3 million and the Park Avenue co-op he’d never had a chance to move into. It amounted to virtually everything he had. He was allowed to keep the West 78th Street apartment, his Buick, and $60,000. Wilkis wept as he was sentenced to a year and a day in prison and five years’ probation.
Wilkis never spoke to Cecola again. “This kid will be angry at you,” Goldsmith, the investigator, told him when he finally implicated Cecola. “But he’ll never know what you sacrificed for him. I don’t know why you let this guy do it to you. He was worse than Dennis Levine was at age 22.”
That left only one member of the immediate Levine ring. Reich posed a more difficult challenge for the government. Unlike the others, he had taken no money. He hadn’t traded himself. There was no paper trail. The case might be Levine’s word against Reich’s, and Levine had a record of lying under oath. Reich, by contrast, was an upstanding member of the bar, a partner in one of the city’s most prestigious firms. But Carberry decided to enlist Levine for another try.
During the first week in July, nearly a month after Levine’s plea, Reich wa
s busy defending a hostile takeover attempt against a Wachtell, Lipton client, NL Industries, a conglomerate once known as National Lead. Since his suicidal episode in California, Reich had consoled himself with the knowledge that there was nothing concrete to link him to Levine’s trading. If necessary, he would deny everything. He had distracted himself by throwing himself more frenetically than ever into his work, packing his wife and children off to the Hamptons for the summer.
When Reich returned to his office from an NL meeting, his secretary told him someone “bothersome” had called three times and wouldn’t leave his name. At about 4:30 P.M. she buzzed him and said the caller was on the line, insisting Reich would know who he is. Reich picked up the phone, and heard what he considered a shadow of Levine’s voice. “Hi, Ilan,” Levine said weakly.
“How are you?” Reich asked.
“I’m at a phone booth,” Levine said. “Go to a phone booth and call me here.”
Reich was intensely suspicious. “I don’t know what you’re talking about,” he said firmly.
“The government is putting pressure on me to tell about us, and I don’t know what to say,” Levine explained.
“I don’t know what you’re talking about,” Reich repeated, and hung up. He went directly to one of his partners and told him about the call.
The Wachtell lawyers called both Lynch and Carberry, asking what Levine was up to. Was he free-lancing, still trying to falsely implicate others? The government lawyers were noncommittal. Then Herbert Wachtell, one of the firm’s top partners, personally called them to find out what was going on. He reported to Reich that Carberry “didn’t seem surprised” that such a call had been made, and that Lynch had remained silent. “Presumably, they knew what was happening,” he said thoughtfully. Then he reassured Reich. “You did the right thing,” he said. What he didn’t tell Reich was that Lynch had recommended Reich retain an outside criminal lawyer.
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