Attorney with Firm Used by GAF Arrested

The attorney, at a law firm retained by GAF Corp. in its recent takeover bid for Union Carbide, was arrested and charged by federal authorities with passing inside information about the deal to a local stockbroker.

At the same time, the SEC took the unusual step of disclosing that the attorney’s arrest stemmed from an ongoing investigation of the misuse of inside information by brokers and arbitrageurs.

The commission said further that individuals are cooperating with the probe but did not identify any firms or individuals under investigation.

Charged with criminal violations of federal securities laws was Michael W. David, 28, an associate at the firm of Paul, Weiss, Rifkind, Wharton & Garrison.

David was fired Wednesday, said Peter R. Haje, a spokesman for the firm.

Haje said that David had not been assigned to work in any way on the GAF account and added that the firm had determined independently of the authorities that David’s “activities were incompatible with his continued employment here.” David had been a lawyer at the firm since last summer.

David was arraigned Thursday, released on $25,000 bond and is scheduled to return to federal court here for a preliminary hearing April 16.

He was charged with passing information about the merger bid to Andrew Solomon, an employee of Marcus, Schloss & Co., a New York arbitrage firm.

The firm subsequently traded on that information, a Justice Department spokesman said. Arbitrageurs often buy stocks subject to takeover speculation in order to profit from takeover-related price changes.

Solomon, who also was charged, has not yet been arraigned.