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Wall Street Scandals V Life After Giuliani: Kindler, Gentler Approach to White-Collar Crime

November 15, 1989 GMT

NEW YORK (AP) _ Rudolph Giuliani went in like a lion and came out like a lion, parlaying a crime-busting record as U.S. attorney into a run for New York City mayor. His successor, Otto G. Obermaier, doesn’t roar much.

No one is calling Obermaier a lamb, at least not until it becomes clear whether the new chief federal prosecutor for Manhattan intends to continue Giuliani’s historic assault on Wall Street crime.

Obermaier clearly has a different background. Before taking office last month, he specialized in defending white-collar criminals. In fact, he represented several professionals targeted in the government’s three-year insider trading investigation.


Legal experts say Obermaier won’t abandon criminal securities fraud cases - more than 30 people and four brokerages were convicted or pleaded guilty in cases started under Giuliani - but they do envision a kinder, gentler approach.

To wit, don’t expect Otto Obermaier to hold news conferences trumpeting indictments or to arrest stockbrokers in handcuffs.

″With Obermaier, I think you will see a little less aggressiveness and a little more care before cases are brought, but I expect him to be very effective,″ said Harvey J. Goldschmid, a securities law professor at Columbia University.

Critics asserted that Giuliani was overzealous and publicity-hungry, especially during the wave of insider trading cases that followed guilty pleas by investment banker Dennis Levine and stock speculator Ivan Boesky in 1986.

″No taking it away from him - Giuliani had a spectacular prosecutorial career - but I think he went too far,″ said Arthur Mathews, attorney for former corporate raider Paul Bilzerian, who was convicted of fraudulently concealing stock ownership, or ″parking.″

Giuliani’s regime expanded the use of criminal laws to prosecute stock parking for the first time and employed the powerful Racketeer Influenced and Corruption Organizations Act against investment firms and Wall Street pros.

Drexel Burnham Lambert Inc. officials have said the threat of the law persuaded the firm to plead guilty to felonies rather than face crippling asset seizures. Princeton-Newport Partners LP went out of business shortly after being hit with RICO charges last year.

Six defendants were convicted in the Princeton-Newport case and sentenced last week to short jail terms.


In the largest racketeering case of its kind, former Drexel junk-bond financier Michael Milken and two others face charges with billions of dollars in potential penalties.

Former prosecutors defend the office’s aggressive reputation.

″For a long time this activity wasn’t actively prosecuted and perhaps people grew to expect that,″ said Bruce Baird, who headed the U.S. attorney’s task force on securities and commodities fraud from 1987 until earlier this year.

″That never seemed like a good enough reason not to prosecute a case,″ said Baird, now in private practice in Washington.

One of the most vivid scenes from Giuliani’s term remains the February 1987 arrest of Richard Wigton, a Kidder, Peabody & Co. trader who was handcuffed and frisked in front of stunned co-workers.

An indictment alleging insider trading by Wigton and two other prominent traders was quickly dropped, however, and the case was closed two years later without charges against Wigton or co-defendant Timothy Tabor. The third man, Robert Freeman, pleaded guilty to one count of mail fraud.

The case prompted accusations that Giuliani never really had the goods on the three and hoped to pressure them into striking plea bargains like many other Wall Street figures.

Indeed, many attribute the decision of numerous defendants to plead guilty and cooperate with prosecutors in part to their fear of civil liability or asset forfeitures that could follow a criminal conviction.

In an interview in his office, Obermaier said the U.S. attorney should become involved in financial fraud cases only after market enforcement mechanisms and Securities and Exchange Commission civil procedures have been exhausted.

He said securities cases under Giuliani ″seemed to fall clearly in this category″ and he would be ″hard-pressed to find anything significantly at fault.″ But civil cases never were brought against Wigton, Tabor and Freeman.

The tall, self-assured Obermaier is no newcomer to prosecuting. He worked as an assistant U.S. attorney in Manhattan from 1964 to 1968 and as trial counsel for the SEC’s New York office the following two years.

In the 19 years since, Obermaier, 53, son of an ice cream factory worker and a seamstress, has handled an array of financial fraud cases including insider trading, tax evasion and stock manipulation.

In articles in legal journals, he has criticized the use of criminal laws to prosecute civil securities violations including stock parking, and the widening application of RICO on Wall Street.

Unlike Giuliani, who rode his recognition as a prosecutor into politics soon after resigning last January, Obermaier said he has no political aspirations. The Republican Giuliani was defeated in last week’s election.