Judge Asked to Overturn Securities Verdict

NEW YORK —  The six defendants convicted of unlawful securities trading in the Princeton-Newport Partners LP case have asked a federal judge to overturn the verdict on the grounds that the trading was legal.

In a memorandum filed Monday with U.S. District Judge Robert L. Carter, attorneys for the defendants also argued that the racketeering statute they were convicted under is “unconstitutionally vague.”

Five former partners in the defunct investment firm and a former Drexel Burnham Lambert Inc. trader were convicted July 31 on 63 of 64 counts in the first securities racketeering case ever. The jury required the defendants to forfeit $3.8 million in assets.

Prosecutors recently filed a separate memorandum with Carter seeking to force the defendants to forfeit $19.2 million, the full amount possible under the racketeering law. Carter has indicated that he is inclined to overrule the jury.

Overlaps Milken Case

Two of the counts were charged under the federal Racketeer Influenced and Corrupt Organizations Act, which carries stiff prison terms and a requirement to forfeit profits from the alleged wrongdoing plus interest and salaries during the period.

The defendants in the case are former Princeton-Newport officials James Sutton Regan, Jack Z. Rabinowitz, Charles Zarzecki, Paul A. Berkman and Steven B. Smotrich, and former Drexel trader Bruce Lee Newberg.

The case overlaps the government’s 98-count fraud and racketeering indictment of former Drexel junk bond chief Michael Milken. Much of the same evidence is expected to be introduced at Milken’s trial, scheduled to begin in March, 1990.

Princeton-Newport, a small securities firm with offices in Princeton, N.J., and Newport Beach, went out of business after the indictment was brought last August. Neither Princeton-Newport nor Drexel were charged in the case.

The defendants were convicted of various conspiracy, racketeering, mail, wire and securities fraud charges. The government alleged that they arranged to sell securities at a loss and then repurchase them later in a scheme to generate bogus tax losses.

In their memo, the Princeton-Newport lawyers argued that the trades were legal under Internal Revenue Service guidelines and other cases allowed similar trades.

They also said the racketeering statute was vague, citing a recent Supreme Court case in which four justices invited a constitutional challenge to the law on the grounds of vagueness.