3 Major Wall St. Figures Face ‘Insider’ Charges : Goldman Sachs Partner, Kidder Vice President, Ex-Vice President Arrested; Colleagues Stunned

NEW YORK â€”  In a significant expansion of one of Wall Street’s worst scandals, federal prosecutors Thursday arrested and charged three prominent figures in the investment community with criminal violations of laws against trading stock on inside information.

The U.S. attorney’s office filed complaints against Robert M. Freeman, a partner at Goldman Sachs & Co.; Richard Wigton, a vice president at Kidder Peabody & Co., and Timothy L. Tabor, a former vice president of Kidder.

Goldman Sachs and Kidder Peabody are two of Wall Street’s largest and most respected firms. All three executives were involved in an increasingly controversial field known as risk-arbitrage--speculation in stocks of firms involved in takeover attempts.

Massive Federal Probe

The charges represent a huge step forward in a massive federal investigation of insider trading on Wall Street that previously had ensnared one of the nation’s biggest stock speculators, Ivan F. Boesky, and a leading merger specialist, Dennis B. Levine.

Although the investment community has been expecting additional criminal charges for months, Wall Street was stunned at the prominence of the firms and individuals involved. “Shocking, absolutely shocking,� an executive at a leading investment firm said. “These people are among the best known on the Street.�

The New York Stock Exchange, in a one-sentence statement, said: “We applaud any action that protects the credibility of the marketplace.�

Among the deals involved in the latest insider trading charges was Unocal’s bitter 1985 takeover battle with Texas businessman T. Boone Pickens. Unocal’s strategists in waging its successful fight for independence included the investment firm of Goldman Sachs, where Freeman was employed as chief of its risk-arbitrage unit.

Prosecutors charged that Freeman, 44, passed information on Unocal’s defensive strategies to Tabor and Wigton. Wigton, 52, is a Kidder Peabody vice president in charge of the firm’s over-the-counter stock trading and risk-arbitrage department. Tabor, 33, was a Kidder Peabody vice president until a year ago. Most recently, he directed the arbitrage department at Merrill Lynch, which fired him a month ago because “his philosophy didn’t fit in� with the firm’s, according to a Merrill Lynch spokesman. Merrill Lynch said it knew of no wrongdoing by Tabor at the time of his firing.

None of the three executives are accused of personally profiting from the alleged conspiracy. Although Freeman is charged with using inside information illegally for his own personal account, he may not have earned any profits on the trading.

The charges Thursday were based on tips from a Wall Street executive identified by federal prosecutors only as CS-1. U.S. Atty. Rudolph Giuliani described the informant only as an “executive of Kidder Peabody� during the scheme’s run--from June, 1984, to January, 1986. Prosecutors said also that the man has agreed to plead guilty to two felony counts, one for his own illegal involvement in Unocal trades.

Takeover Strategist

Several sources who are cooperating with the government’s investigation identified the informant as Martin A. Siegel, a prominent corporate takeover strategist who left Kidder Peabody in February, 1986--one month after this scheme is alleged to have ended. Siegel, who as previously reported was subpoenaed by the government as part of the Boesky investigation, now is a vice president at the investment firm of Drexel Burnham Lambert Inc.

A spokeswoman for Drexel, which itself is the subject of a Securities and Exchange Commission investigation into illegal insider trading, said Thursday that the firm has not been notified of any alleged wrongdoing by Siegel. He is still working for Drexel’s mergers and acquisitions department, she said. Siegel did not return phone calls from The Times.

Called Key Figure in Probe

Siegel has repeatedly been rumored as central to the government’s insider trading investigation. And Wall Street was awash Thursday with unverified reports that he recently sold his Connecticut home and Manhattan apartment in order to obtain cash, presumably to turn over to the government as part of a deal expected to be announced any day.

Giuliani promised that more information would be released soon. And sources cooperating with the government’s investigation said that even bigger charges will be announced as early as today. Urging patience, government prosecutors refused to say whether the latest charges are linked to the Boesky-Levine scandal. “In the very near future, the answer to that question will become apparent,� Giuliani told reporters.

But sources involved in the government’s widening insider trading investigation said prosecutors have evidence that the latest case is connected to Boesky. The link, those sources said, is Storer Communications. Boesky bought a large interest in Storer in 1985, when the communications company was a takeover target of Kohlberg, Kravis, Roberts & Co., which was being advised by Kidder Peabody.

Neither Kidder Peabody nor Goldman Sachs has been charged with any wrongdoing, even though Giuliani told reporters here Thursday afternoon that this marks the first time a company is said to have profited from insider trades. “There is no allegation that Goldman Sachs as an entity profited from these trades,� Giuliani said, but Kidder allegedly did.

Both firms on Thursday denied any wrongdoing. A spokesman for Goldman Sachs said the firm conducted its own investigation after the Boesky disclosures three months ago and found no evidence of illegal deeds by Freeman or anyone else. As for Kidder Peabody, “We do not have any information as to the basis of these charges,� a spokesman said.

Arresting the latest defendants was a departure for insider trading investigators. Until now, all of the defendants but Levine have settled civil insider trading charges with the Securities and Exchange Commission before being charged with criminal offenses. Even Levine was charged by the SEC before being arrested last May and charged with the criminal offense of obstruction of justice.

By contrast, Tabor was arrested at his home late Wednesday afternoon and spent the night in a New York jail. His alleged co-conspirators were arrested at their Wall Street offices shortly before noon Thursday. Wigton refused to leave willingly and was handcuffed.

All were charged with conspiracy and released after posting $25,000 bail. The charges against each official are punishable by as much as five years in prison and a $250,000 fine.

The SEC would not say if it is preparing civil charges against the three men, although a government investigator indicated informally that it is.

As the government describes the scheme, the unnamed informant admitted to investigators that he swapped secret corporate information with the three men and used it to trade stocks for Kidder’s own account. Although their motive is not spelled out in the court papers, Wall Street sources said the executives’ bonuses would rise in step with any increase in their firm’s arbitrage profits.

Kidder made a particularly “huge profit on its Unocal arbitrage position� because of the alleged conspiracy, the government charged.

In the alleged conspiracy involving the takeover bid for Unocal, Freeman is accused of learning secret information from Goldman Sachs colleagues who were actively advising Unocal in its takeover fight against Pickens and passing along details of Unocal’s plans to the unnamed informant. In turn, the government alleges, the informant passed on the information to Kidder’s Tabor, who bought stock options to protect Kidder’s already “substantial position in Unocal stock� in case the stock dropped sharply in price.