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Prosecution's shift in insider trials could indicate a weak case

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After highly publicized arrests in February, federal prosecutors are suddenly backpeddling in their insider trading case against three Wall Street executives. Whether it's a strategic retreat to a stronger position or a disorderly withdrawal remains unclear. The United States Attorney's office asked a federal judge earlier this week to dismiss the securities fraud indictments brought against arbitrageurs Robert M. Freeman of Goldman, Sachs & Co. and former Kidder, Peabody & Co. employees Richard B. Wigton and Timothy L. Tabor. At press time, the judge had yet to rule on the request.

The unusual move typically signals that prosecutors have insufficent evidence to make a case. It comes on the heels of an unsuccessful attempt to delay the trial by two months.

``It may be tactical move, but it suggests they don't have confidence in the narrow case alleged in the indictments,'' says Richard Phillips, a securities lawyer with Kirkpatrick & Lockhart, a law firm in Washington.

Federal prosecutors justified Wednesday's dismissal request, saying evidence now being uncovered in a grand jury investigation pointed to a wider conspiracy. The original four indictments are ``the tip of the iceberg,'' said assistant US attorney Neil Cartusciello. He said new charges would cover illicit trading in approximately nine companies, instead of just two: Unocal and Storer Communications.

But defense laywers say the government moved too quickly and is now trying to cover its tracks. They are expected to ask that the trial be dismissed ``with prejudice.'' If the judge dismisses the charges with prejudice, it would be at least a short-term blow to federal prosecutors. It means the government could not indict the three men on the same stock trading deals, say securities lawyers.

Prosecutors could rebound with a stronger case. They might not have taken this gambit unless they felt there were bigger charges to be brought.

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