Government's Gary Lynch turns stock cheaters into convicts

On the seamier side of Wall Street, where stocks are manipulated and inside information is passed, Gary Lynch is not a popular figure. Mr. Lynch, the young, lean director of enforcement at the Securities and Exchange Commission (SEC), has spent the last 12 years turning cheaters into convicts. His lineup of inside traders includes the wealthy and the powerful: Wall Street's Ivan Boesky and the Pentagon's Paul Thayer, among others.

Today Lynch is orchestrating probably the largest insider-trading case in history. Any day now, the government could charge investment bank Drexel Burnham Lambert and its star banker, Michael Milken, with securities violations, capping a massive investigation.

If and when it does, Lynch can expect the legal fight of his career. Following SEC policy, he will not confirm or deny the existence of such an investigation.

Many close observers of Wall Street say Drexel is proving a hard nut to crack. They question the strength of the government's evidence against Drexel and are critical of the way the government is handling this highly publicized case.

But those who have worked with and against Gary Lynch say it would be foolish to underestimate him.

``Gary was regarded as the sharpest securities lawyer'' at the commission, says Peter Romatowski, who as an assistant US attorney worked with Lynch in the case against R.Foster Winans, the Wall Street Journal reporter convicted in another insider-trading case.

And he remains formidable, notes Mr. Romatowski, now a private securities lawyer and one of those defending Mr. Boesky.

Boesky was sentenced to three years in prison last year for trading on inside information; in 1986, he agreed to pay $100 million in penalties.

Lynch looks far too young to be pruning the top echelons of Wall Street. Indeed, only 12 years ago, he was driving a truck in Florida.

After graduating from Duke Law School in 1975, Lynch went to work at a Washington law firm specializing in securities law. Less than a year later, ``I realized I wasn't certain I wanted to practice law for the rest of my life,'' Lynch said in a recent interview. ``I thought it was time for a radical change.''

So he threw his belongings into his car (an Audi, which kind of ruins the image) and headed for Florida. He drove a truck for his brother for a while. A few weeks later, he set out for California. In August, he had another realization: ``I decided I wanted to live in Washington, and I didn't want to drive a truck.''

He applied to the Securities and Exchange Commission, which enforces laws governing the stock market.

Lynch's thoroughness and legal smarts, which later captured people like Boesky, were evident early in his career, says Stanley Sporkin, who headed the SEC's enforcement division and hired Lynch.

Mr. Sporkin, now a federal court judge, remembers a case in 1977, when Lynch had been at the SEC less than a year. The 27-year-old attorney had just completed an investigation into whether a broker-dealer in Los Angeles had been manipulating stocks. Lynch asked the firm's defense lawyer - Frank Wheat, a former commissioner at the SEC and a veteran securities lawyer - to meet with him to go over the government's evidence.

``For every question, Gary had an answer,'' Sporkin recalls. At the end of the meeting, Sporkin says, ``instead of saying he was going to contest the case, as defense lawyers almost always do, Wheat sat back and said, `Well, you got us.'''

Over the next few years, Lynch had a hand in tripping up other white-collar criminals like inside trader Thomas Reed, one of President Reagan's national-security advisers, and former Deputy Defense Secretary Thayer, who was convicted of covering up an insider trading scheme in 1985.

Under his prodding, the SEC extended insider-trading law in a landmark case against Mr. Winans, who wrote the Wall Street Journal's ``Heard on the Street'' column.

His record of success propelled him from staff attorney to director of enforcement in nine years, making him, at age 34, the youngest director by far.

And he hasn't let up. In the last three years, his staff and those in the US attorney's office in the Southern District of New York have sent shock waves through Wall Street.

The investigators have elicited confessions and cooperation from Boesky and prominent investment bankers like Dennis Levine and Martin Siegel.

``What's going on now has got to be his finest hour,'' says Irwin Borowski, a former associate director of enforcement at the SEC. ``This is probably among the most important things the commission has ever done.''

And the hardest. Drexel is putting up a stiff fight. The SEC has spent countless man-years on the case, as has Drexel. Because of the cost and publicity, this appears to be a case that neither side can afford to lose.

It is, however, not all-consuming for the SEC. Lynch says the commission is pushing ahead with several insider-trading investigations stemming from information given by Boesky and others.

Lynch is also concentrating on ``parking'' violations, in which people conceal stock ownership. He will not comment on cracking down on ``intermarket front running,'' in which brokers use nonpublic information from one market to trade in another market. However, since Black Monday, when evidence of such practices surfaced, the SEC is thought to be taking a serious look at the issue.

A final area that will get close scrutiny are so called ``penny stocks'' sold over the counter. A common practice is for disreputable brokers to trump up highly speculative stocks and sell them to unsophisticated investors. The stocks often collapse, wiping out the investment. ``People really get nailed,'' he says.

And if Gary Lynch has anything to say about it, it is the brokers' turn under the hammer.