The Insider

By Stephen Koepp

Nahum Vaskevitch and David Sofer were well known respectively in London and Jerusalem financial circles, where they seemed the very models of the modern investment wizard. Less known to their colleagues -- in fact, their deep, dark secret -- was the amount of time they spent in frequent, terse phone conversations. Last week the subject of their calls became the stuff of scandal when the Securities and Exchange Commission charged Vaskevitch, 36, the head of international mergers in Merrill Lynch's London office, and Sofer, 46, an Israeli stock speculator, with ringing up more than $4 million in illegal profits from a transatlantic insider-trading scheme.

The plot, which authorities say operated independently of the ring associated with Arbitrager Ivan Boesky, was nonetheless based on inside knowledge of U.S. corporate takeovers. As such, it provoked fresh concern in both the U.S. and Britain about the spreading abuse of inside information, which now appears to be virtually a way of life in a growing list of financial institutions. Said John Smith, the British Labor Party's top spokesman on trade and industry: "Quite frankly, it stinks."

These charges also revealed the growing ability of the SEC to crack cases without the help of the leads that played such a major role in the still spreading Boesky probe. Just as important, it demonstrated the SEC's willingness to track down suspects beyond U.S. borders, a crucial enforcement step in an era of global stock trading.

As a top Merrill Lynch mergermaker, Vaskevitch was in a prime position to know about any takeover deal being planned by one of the giant investment house's clients. The SEC says Vaskevitch illegally passed such tips to Sofer, who then arranged to buy the takeover stocks through two Wall Street brokerage firms, MKI Securities and Russo Securities, neither of which has been charged with wrongdoing. The profits from the trades returned in a roundabout way to Vaskevitch and Sofer through two intermediate companies, situated in England and Liechtenstein, in which Sofer held an interest, the SEC claims.

Vaskevitch and Sofer allegedly used their setup to profit from at least twelve deals involving Merrill Lynch clients. Vaskevitch worked directly on one of them, the purchase in March 1986 of Herman's Sporting Goods by Britain's Dee Corp., which the SEC says produced a profit of $263,988 for the two suspects. Their biggest haul was K mart's 1985 takeover of Pay Less Drug ! Stores Northwest, which the SEC contends brought them nearly $1.2 million.

Their downfall began when officials of the New York Stock Exchange noticed unusually heavy advance trading in several takeover stocks. Since the 1960s, the exchange has been expanding a computerized Stock Watch system that monitors trading and alerts its experts to suspicious patterns. The exchange immediately tipped off the SEC, which built its case by tracing the trades to Vaskevitch and Sofer and then examining their telephone records. After the SEC filed the civil charges last week, a federal judge froze all current U.S. assets of Vaskevitch and Sofer to prevent the two from pulling the money out of the country. The SEC hopes to force the suspects to disgorge their profits and pay triple damages, all of which could total $16 million. While no criminal charges have been filed against the two suspected insiders, the U.S. Attorney's office is conducting an investigation. If such charges result, Britain and Israel may be asked to extradite Vaskevitch and Sofer to the U.S. for trial.

Even so, the charges may have already shattered the careers of the two cosmopolitan go-getters. Merrill Lynch promptly fired Vaskevitch, citing his failure to give the company an explanation of the SEC's charges. The son of a wealthy Israeli tobacco trader, Vaskevitch had already risen to head a merger operation for a British investment house by age 30, when he joined Merrill Lynch in 1981. He quickly became Merrill's top international mergermaker and lived accordingly in a $2.4 million London home filled with antique furniture.

Sofer, the son of a noted rabbi, is a silver-haired bachelor known for squiring an array of beautiful women around Jerusalem. He began building his fortune in the 1970s by discovering oil in the Sinai peninsula, then racked up more profits by speculating in the wildly bullish Tel Aviv stock market of that period. Sofer today maintains a suite in the Jerusalem Hilton, which he bought in 1982 for $18 million in partnership with a group of U.S. investors, among them Fort Worth Oilman Louis Barnett. The SEC claims that Sofer shared his illegal stock tips with Barnett and another friend, Michael Jesselson, whose father Ludwig Jesselson is the founder of Philip Bros., the U.S. commodity-trading house. So far, neither American has been charged.

For Merrill Lynch last week's accusations were a shock, even though the company was not accused of making any profits from the alleged insider dealing. It was still an end of innocence, since Vaskevitch was the firm's first investment banker to get caught up in the insider-trading scandals. Moreover, the involvement of so high an executive in the largest U.S. brokerage firm sent new waves of shivers through Wall Street. According to the rumor mill, which is now more preoccupied with subpoenas than proxy statements, as many as 60 Wall Streeters will be accused in connection with the Boesky scandal alone. Rumors about possible charges against the investment firm Drexel Burnham Lambert, which had close ties to Boesky, have become so vexing to the company that it has begun taking out two-page newspaper ads listing a roster of 238 contented clients.

Suspicions of a wider insider-trading conspiracy on Wall Street were fanned last week by the release of an SEC study of 172 tender offers during 1981-85. In every instance, the target company's stock price rose abnormally at least 17 days before the takeover bid was made public. The study reached no firm conclusion about the cause, acknowledging that several factors, among them rumors and speculative press reports, could help explain the phenomenon. Nonetheless, "it is possible, and logical to many, that illegal insider- trading behavior" might be a significant factor, the study said. If so, the crackdown comes none too soon.

With reporting by Marlin Levin/Jerusalem and Frank Melville/London