Former Merrill Lynch Junk-Bond Analyst Indicted
Aug. 20, 1992
NEW YORK (AP) _ A former junk-bond analyst at Merrill Lynch & Co. and his college friend were indicted Thursday in an alleged insider trading scheme that netted more than $1 million.
Edward L. Scherer, 32, of Houston, and Ellis J. Strelitz, 31, a furniture company executive from Virginia, were charged with conspiracy, wire fraud and commercial bribery.
At the same time, the Securities and Exchange Commission filed a civil lawsuit that names Scherer, Strelitz, Strelitz's wife and father, and Richard Kursman, a former junk-bond trader at Merrill Lynch.
The SEC did not accuse Strelitz of any wrongdoing, but the commission said alleged profits from the trading were in accounts at Merrill Lynch in his name, his wife's name his father's name.
Kursman was listed in the criminal indictment as a co-conspirator, but he was not indicted.
The U.S. Attorney's Office in Manhattan refused to comment on whether Kursman was cooperating in the probe, but the SEC said he had agreed to settle the civil charges and aid their investigation.
Kursman's lawyer, Jerry Bernstein, said his client was cooperating with federal prosecutors, but he declined to comment on whether a plea bargain was in the works.
The government reportedly has been investigating for months such possible violations at Merrill Lynch as ''front-running'' - trading ahead of customers - and ''scalping'' - promoting issues after acquiring a personal stake.
While such conduct is illegal when stocks are involved, legal experts say the law is murkier when applied to high-yield bonds.
Kursman and Scherer were fired from Merrill Lynch's New York office last September for ''mishandling a customer account,'' Merrill Lynch spokesman William Clark said. Their alleged misconduct was immediately reported to government regulators, he said. ''Merrill Lynch is the victim in this matter,'' Clark said.
The indictment alleges that Scherer, Strelitz and Kursman had a secret agreement to circumvent Merrill Lynch conflict-of-interest rules prohibiting certain trading of junk bonds by Merrill Lynch employees.
From October 1990 to September 1991, Scherer and Kursman allegedly directed profitable trades to accounts controlled by Strelitz. The three then split more than $1 million in profits, the indictment says.
Strelitz, who attended the the University of Pennsylvania's Wharton School with Scherer, is president and part-owner of Haynes Furniture Co. of Virginia Beach, Va.
Attorneys for both men denied any wrongdoing and said their clients had cooperated fully with the government for nearly a year.
In settling with the SEC, Kursman agreed to pay $15,000 and forgo his rights to any profits from the illegal trading scheme.
The SEC would need a court order to obtain the money from Strelitz and his wife and father if it wins its case against Scherer and Kursman, said Strelitz's lawyer, Ira Lee Sorkin.