from January/February 2008
by Rob Norton
U.S. postal inspectors, acting under the orders of Rudolph Giuliani—then U.S. attorney for the Southern District of New York—arrived unannounced at the office of Richard Wigton, head of arbitrage at Kidder Peabody, on February 11, 1987. They slammed him against a wall, handcuffed him, arrested him for insider trading, and led him away in tears as his stunned colleagues looked on. At a press conference later that day, Giuliani announced that Wigton’s arrest, along with two others the same day—of Timothy Tabor, a former Kidder Peabody trader arrested that night at his home, and Robert Freeman, the head of arbitrage at Goldman Sachs, arrested and handcuffed at his office—marked the beginning of “a very long and substantial investigation.”
Three months later Giuliani’s office concluded that the evidence on which the charges had been based was in fact rather weak, and withdrew the indictment. At the same time, it insisted that the alleged illegal conduct was “merely the tip of an iceberg” and promised to bring a new indictment later. No such indictment ever materialized. After more than two years, all charges against Wigton and Tabor were dropped. Freeman pleaded guilty to a single felony count of insider trading and served four months in prison.
Wigton’s humiliating arrest was just one of several such tableaux staged during Giuliani’s reign. In another case, he sent a 50-man SWAT team with guns and bulletproof vests to a suburban New Jersey brokerage house, during business hours, to seize evidence in another alleged insider-trading case. He prosecuted the firm, Princeton/Newport Partners Trading, for tax evasion under the Racketeer Influenced and Corrupt Organizations Act and won his case. The conviction was later overturned on appeal, but by then Princeton/Newport had gone out of business.
Giuliani also secured some laudable convictions, notably those of Ivan Boesky and Michael Milken. But the arrests of Wigton and Freeman were controversial. The Wall Street Journal denounced them, and the New York Times —then as now not exactly pro-Wall Street—editorialized that the use of handcuffs in such cases “raised disturbing questions.”
No questions can be raised, however, about how well the showboat tactics worked for Giuliani. He parlayed his reputation as a guy who could be tough on Wall Streeters into two terms as mayor of New York City. The rest, as they say, is history.
Giuliani’s career trajectory has been seen again in the advancement of Eliot Spitzer, current governor of New York (and reportedly, like Giuliani, a presidential hopeful). Spitzer too reaped a heap of personal publicity from sometimes-dubious prosecutions of Wall Street firms. Many were withdrawn when the targeted companies elected to pay fines rather than run the risk of corporate indictments, but in one of the few that went to trial—a Bank of America broker charged with grand larceny and a welter of other crimes in connection with mutual fund trading—the jury acquitted the defendant on 29 of 33 counts and deadlocked on the others, which Spitzer eventually dropped.
Prosecutors seeking advancement in the private sector have also capitalized on media coverage. Today Larry Thompson, the U.S. attorney who orchestrated the arrest and conviction of then-78-year-old Adelphia CEO John Rigas—also led from his office in handcuffs—is general counsel of PepsiCo. Sean Berkowitz, who led the successful prosecution of Enron’s Kenneth Lay and Jeffrey Skilling, left his government job soon thereafter to become a partner at the Chicago law firm Latham & Watkins. According to an American Lawyer survey, the average profit per partner there at the time was $1.6 million a year.