NEW YORK -- In one of the largest cases of insider trading on record, the government charged yesterday that 17 people used confidential information about AT&T; Corp.'s plans to acquire four companies in 1988-1993 to realize $2.6 million in illegal profits.
The indictments come at a time when charges of insider trading violations, the province of Wall Street deal-makers and speculators in the mid-1980s, are being brought with rising frequency against current or former corporate employees and advisers who have learned of pending mergers or acquisitions. In the 12 months ended Sept. 30, regulators have filed a record number of insidertrading cases.
"In terms of the number of people involved, this is one of the largest civil cases," said Joseph Goldstein, associate director of the Securities and Exchange Commission's enforcement division.
The alleged scheme, which prosecutors said involved a web of friends and relatives in five Eastern states, resulted in charges on two fronts. A U.S. grand jury indicted six men, including a former AT&T; employee, on 16 counts of securities fraud.
A civil lawsuit was brought by the SEC charging 17 people, including the six criminal defendants, with insider trading.
AT&T; wasn't charged and cooperated with the investigation.
The SEC suit says that the insider trading scheme netted $2.6 million in profits. The criminal case contends that the six defendants madeprofits of $2 million.
Mary Jo White, the U.S. attorney for the Southern District of New York, said two former AT&T; employees, Charles Brumfield, a former vice president of human resources, and Thomas Alger, who was his subordinate, also pleaded guilty to conspiracy to commit securities fraud.
Mr. Brumfield also has pleaded guilty to a perjury charge. Both men are charged with civil law violations in the SEC filing and are cooperating with the criminal investigation.
Mr. Brumfield, who retired from AT&T; in May 1993 after 31 years with the company, and Mr. Alger, who retired a month later, ending 36 years with AT&T;, were at the heart of the scheme, officials said.
However, they never bought or sold stock. Instead, the authorities said, they gave tips on pending deals to others and took kickbacks from the profits realized by those who traded on the inside information.
According to the civil and criminal lawsuits, from 1988 until about 1993 Mr. Brumfield and Mr. Alger passed on confidential information about AT&T;'s plans to acquire five companies to an ever-widening circle of friends and relatives in New York, New Jersey, Illinois, Florida and North Carolina.
The indictments say that most of the illegal profits were made from trading in the securities of NCR Corp., the computer company AT&T; made a tender offer for in December 1990. Other transactions were in the securities of Paradyne Corp., Digital Microwave Corp. and Teradata Corp., which were potential acquisition targets for AT&T.;
"These were comparatively low-level AT&T; employees tippin their friends," Ms. White said at a news conference announcing the indictments. According to the criminal indictment, Joseph Cusimano, a friend of Mr. Brumfield's, gained the most from the inside information, making profits of more than $865,000 as a result of illegal trading.
If convicted, Mr. Cusimano could be sentenced to 45 years and fined more than $5.7 million.
Mr. Brumfield, who along with Mr. Alger has been cooperating with the government, faces a possible maximum prison term of 10 years.
In its civil complaint, the SEC says that Mr. Brumfield and Mr. Alger each received more than $300,000 in payments from the profits other defendants made trading on their inside information.
AT&T;, like many public companies, has clearly stated policies against trading on nonpublic information by its employees. But the incidence of illicit trading by corporate insiders is on the rise, even as it recedes on Wall Street.
"One is seeing less inside trading on Wall Street now, partly because fewer investment banking houses are engaged in risk arbitrage," said John H. Sturc, a former SEC enforcement official who brought civil cases against many of Wall Street's most infamous inside traders, including Ivan Boesky, Dennis Levine and Martin A. Siegel.
Exchanges and regulators have invested huge sums in technology to root out suspicious trading activities, and Mr. Sturc, now a partner in the Washington office of Gibson, Dunn & Crutcher, said he expected the number of inside trading cases involving corporate employees to rise.
"In the last year or two, merger-and-acquisition activity has picked up a lot," he said. "As a result, we will probably see more of these cases."