White-collar crooks' suite-heart deals

Insider trading, it turns out, really is a serious crime.

Who knew?

Not Malcolm Wittenberg, the big-firm Oakland attorney who gambled a 30-year career for a measly $14,000 in stock profits the feds say derived from a client's confidential information.

Not Vaughn Walker, the San Francisco federal judge who coddled the masterminds of securities fraud at California MicroDevices because he admired their charitable contributions and believed their situations "tragic."

And certainly not the countless Messrs. Big Pants who shared high-tech secrets for stock market killings in the shameless Valley of Greed, aka Silicon Valley.

But earlier this month, the U.S. Sentencing Commission set them straight. It proposed to double prison sentences for high-ticket fraud and insider trading, and make similarly husky increases for tax cheating and other white- collar crimes. The new punishments take effect Nov. 1 unless Congress rejects them, which virtually no one believes will happen.

So, swaggering capitalists who cross the line may do, say, five years for a $500,000 fraud rather than a paltry two years - and that sends a critical message.

Anyone remotely connected with the high-tech miracle in Silicon Valley knows it was tainted by cooked books and rigged offerings and rampant insider trading - the practice of selling or buying stock on valuable information known only to company executives.

The corruption lured money into companies and products that didn't deserve the investment. It scammed people into buying hot-air stocks that inevitably collapsed. And it undermined the public's faith in the financial markets, teaching us that the game is fixed in favor of corporate honchos and their legal and financial advisers.

Yet few honchos took this stuff seriously. They treated their profits as an entitlement rather than as ill-gotten gains that could buy them time in jail.

Wittenberg earned a lofty six figures as a partner at Crosby, Heafey, Roach & May - Oakland's largest law firm. He headed the firm's patent practice, one of the hottest areas of the law.

But, on Aug. 16, 1999, according to the Securities and Exchange Commission, a client told him it was considering a merger. Rather than keep the information confidential, says the SEC, Wittenberg bought 2,000 shares of his client's stock. On Aug. 23, the merger was announced, the client's stock skyrocketed - and Wittenberg realized $14,000 in profits.

A few weeks ago, the SEC settled a civil lawsuit against him, but he still faces criminal charges of insider trading. He denies wrongdoing.

Now, who risks a lucrative legal career for $14,000?

Hard to say, but clearly not someone who believes he will answer for his crime. Which raises a troubling point about the proposed sentencing guidelines.

Alone, they are worthless. They only work if securities cheats are caught, prosecuted and punished. And in the Bay Area, the record is dismal.

For years, local offices of the SEC and U.S. attorney had little to show for their tough talk about securities fraud. The sudden high-tech boom caught them unprepared. For every California MicroDevices, there were dozens of Silicon Valley companies fudging their numbers at will.

But things change.

Collapsing stock prices have exposed high-tech Ponzi schemes. The SEC and U. S. attorney have beefed up their San Francisco and San Jose offices and touted cases against wrongdoers such as Wittenberg and McKessonHBOC. U.S. Attorney Robert Mueller preaches zero tolerance of boardroom crooks, promising more prosecutions of admittedly difficult cases.

But Mueller knows the frustration of bringing a powerful case to an unwilling judge.

In March, he criticized the new sentencing guidelines for allowing judges to put more white-collar criminals in halfway houses and home detention. He told the U.S. Sentencing Commission that some judges learn a crook has "a decent background, went to college, and all of a sudden say, ÔWell, why should this person spend time in jail'?"

Mueller didn't name names. But surely he was thinking of Judge Walker's aversion to harsh sentences for well-educated, well-heeled criminals and, in particular, perpetrators of securities fraud.

This is a pivotal moment. Stumbling dot-coms and other high-tech companies are being called to account for their funky financial machinations. Washington,

D.C., lawyer Harvey Pitt is heading for the chairmanship of the SEC to regulate the financial clients he now represents. And an aging population is changing its criminal tastes from violence to white-collar wrongdoing or, as San Francisco State University professor Michael Rustigan puts it, "Crime is shifting from the streets to the suites."