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Will Wall Street Corruption Campaign Thrive or Stall in Crash Aftermath?

December 21, 1987

NEW YORK (AP) _ The stock market crash has raised questions about whether a federal crackdown on Wall Street corruption will thrive on an outcry for more reform or stall to avoid further damage to the weakened securities industry.

Although the government has vowed vigorous enforcement of laws against insider trading and other abuses in the aftermath of the October collapse, there is some concern that the campaign may be pre-empted by the more pressing priority of preserving the market’s basic health.

″Will the insider-trading investigations take a back seat? I guess my answer is yes,″ said Eugene Lerner, a professor of finance at Northwestern University’s Kellogg School of Management.

″One reason is, when there’s trouble, why ruffle already ruffled waters?″ he said. ″The other is that with a finite number of lawyers and people in the government bureaucracy, the time and talent has got to be spent on the most urgent questions. I could appreciate the possibility that while it isn’t abandoned, the campaign isn’t going to be front-and-center.′ ′

Others say they see no evidence that the prosecution effort is waning. On the contrary, they predict enforcement will be heightened and Congress will enact a tough new law next year against insider trading, the misuse of company secrets to profit in the securities markets.

″I don’t discern any change in the government’s drive to go after people who steal or sell information for the purpose of obtaining a market advantage,″ said John F. Olson, a Washington lawyer and chairman of American Bar Association’s task force on insider-trading regulation.

Ira L. Sorkin, a former administrator of the Securities and Exchange Commission’s New York office, said the exposure of major abuses helps the market by reassuring the public.

″I don’t think the next round of indictments, whatever they may be, will affect the market,″ he said. ″It won’t be that type of jolt.″

Nevertheless, there has been little indication that authorities are preparing to announce any major indictments before next year, despite pre- crash predictions that the investigations were proceeding aggressively.

On Dec. 18, speculator Ivan F. Boesky, a central figure in the corruption probe, was sentenced to three years in prison for his guilty plea to a charge he conspired to lie to the SEC. The sentencing theoretically made Boesky a more credible prosecution witness, but there is nobody else to testify against yet.

Martin A. Siegel, an investment banker implicated by Boesky, was awaiting criminal sentencing as of late December. Siegel also is obligated to testify against others under his cooperation pact with the government.

Three other prominent Wall Street traders named as co-conspirators by Siegel remained in legal limbo after the government dropped charges against them in May and indicated they would be reindicted later.

At the same time, a widely awaited case against Drexel Burnham Lambert Inc., an investment firm that has figured prominently in the government’s investigation, had yet to emerge.

For his part, SEC Chairman David S. Ruder has emphasized that deliberate misuse of confidential information by people in and out of the securities markets is enormously disturbing to him.

″The eradication of insider trading by such persons will continue to have the highest priority in the commission’s enforcement program,″ he said recently.

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