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December 1st, 2011 11:40 AM

Convicted Felon Dennis Levine on the Only Way to Clean Up Wall Street

In 1986 Dennis Levine, then a managing director at Drexel Burnham Lambert, pleaded guilty to insider trading. The federal investigation into his crimes later led to convictions of many others, including Ivan Boesky and Michael Milkin. In Ron Suskind's book Confidence Men: Wall Street, Washington and the Education of a President, Suskind describes how Levine advised Congress that things were going to get worse on Wall Street unless the government made a concerted effort to change the financial industry's culture with mass prosecutions:

It was in 1988, after the 1987 stock market crash, and the prosecution of insider trading and various securities frauds was well underway. “Something very basic, very fundamental, had changed on the Street, and we on the subcommittee couldn’t put our finger on what was different,” [Rep. Edward] Markey recalled. So they decided to bring in an expert. Dennis Levine, one of the major Wall Streeters convicted of securities fraud, was serving time in New Jersey. Markey’s staff got in touch with the Bureau of Prisons and arranged to have him transported for an afternoon to a subcommittee conference room ... Soon enough, Levine, in prison blues, was eating his Big Mac and describing how the rewards on Wall Street had suddenly grown so large, and the opportunities for self-dealing and misuse of insider information—so-called informational advantage—so that it would only get worse. “He said, we were ‘just at the very start,’ ” Markey recalled, “and that they’d figured out how to turn the investing of others people’s money into a kind of game, where they were constantly changing the rules in a way that was subtly fraudulent, against the basic principles of fairness or fiduciary duty. He said that with this much money to be made for doing very little, it was worth the risk of getting caught doing what you had to do, but that they were working on lowering that risk as well, with lawyers working overtime to make sure many of these activities were legal, or at least hard to prosecute.” After an hour, Markey said that he and the committee members had heard enough and asked the felon what might be done. Levine, sucking on his shake, thought this over for a minute or two, and then said, “You need to send out a slew of indictments, all at once, and at three p.m. on a sunny day, have Federal Marshals perp-walk three hundred Wall Street executives out of their offices in handcuffs and out on the street, with lots of cameras rolling. Everyone else would say, ‘If that happened to me, my mother would be so ashamed.’ “Levine was saying we should take a dramatic stand on principle to reverse the direction we were moving in . . . before things progressed any further and the problems got even bigger," Markey said. “Culture is destiny and the only way you create real change is by acting in a way that changes the culture.”

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