The day before First Washington Bancorp announced last December that it had hired an investment adviser to look into selling, the thrift's trading volume was three times higher than average, and its stock price jumped 10%.

Less than a month later, the Herndon, Va., the company was sold.

Were investors trading on inside information? Or was it speculative good luck, mere coincidence?

"When a ratio radically changes from its historic norm and then that's followed by a merger announcement, the chances are that something got out," said Paul V. Gerlach, an associate director in the division of enforcement at the Securities and Exchange Commission. "It's usually not just fortuitous timing."

Though the trading activity at First Washington may not raise many eyebrows - stock volatility has become a common feature of the bank merger scene - such instances at community banks and thrifts lead to a significant portion of the insider trading cases brought by the SEC these days, a review of enforcement actions shows.

"It's not the Levines and Boeskys anymore," Mr. Gerlach said. "In many cases it's the management of small banks, secretaries, and family members."

Insider trading cases are not as sexy as in the 1980s, but there are more of them than in most of that decade.

Regulators don't tally bank-related cases separately, but the overall trend is clearly up.

The SEC brought 35 cases involving all sorts of industries in fiscal 1994 and again in fiscal 1995 - almost as many as in the peak year, 1989, when it brought 39. And the National Association of Securities Dealers, which regulates the Nasdaq, the exchange on which most community bank stocks trade, referred 107 cases to the SEC last year, its second-highest total ever.

Officials at both agencies said the number of bank insider trading cases, particularly involving community banks, has risen significantly in recent years with the consolidation boom.

"It's a major trend," said Thomas J. McGonigle, a lawyer with McGuire, Woods, Battle & Boothe in Washington, which is handling about six bank insider trading cases at the moment, a third of its total caseload. "Four or five years ago these banks weren't in play, but now it's where the takeovers are happening.

"Insider trading has gone from Wall Street to Main Street," he said.

Instead of seasoned traders using insider information to trade on a number of takeover deals, most of the recent cases involve amateurs looking for profits from once-in-a-lifetime events, such as the sale of their local bank. The defendants include sons-in-law of bank directors, law school buddies, brothers in their seventies, and an accountant and his fiancee.

Most of the illegal trading involved relatively small amounts of stocks and profits - sometimes several hundred shares and less than $10,000.

Why they do it, particularly given all the publicity from the insider trading scandals of just a few years ago, can be explained by both ignorance and greed.

"You have to be avaricious or dumb to trade on nonpublic information, and there are enough out there that fall into one or the other category," said David M. Becker, a partner at Wilmer, Cutler & Pickering, the Washington law firm that defended Mr. Boesky in the late 1980s.

"If you are not relatively sophisticated and a family member sits on the board of the local bank that's about to be acquired, you might do something without thinking it through."

Other banking lawyers suggested that the people are not fully aware of the surveillance capability of regulators and believe they can outsmart them. Some said the perpetrators believe that their trades are so small and inconsequential that regulators would never notice.

But regulators don't buy the idea that they're dealing with country bumpkins.

"I think most people getting caught know exactly what they're doing," said William R. McLucas, director of the SEC's division of enforcement. "It's a crime of opportunity, and most of these people understand the issue of profit. If they didn't, they wouldn't be involved in this."

One of those who likely knew what he was doing was Murray Ufberg, counsel for Franklin First Financial Corp. in Wilkes Barre, Pa., in 1992.

In July of that year, the bank began exploring opportunities to sell. Discussions with several potential acquirers ensued, leading to an announcement on Nov. 11 that a deal was imminent and that trading in the bank's stock had been halted. Six days later the bank announced its intention to be sold to Onbancorp. of Syracuse.

Mr. Ufberg shared the information about the upcoming merger with an old law school friend, Martyn I. Gefsky, a managing partner at a nearby law firm, according to his settlement with the SEC, in which Mr. Ufberg neither admitted nor denied guilt,

On Nov. 2, Mr. Gefsky opened a trading account at Kidder, Peabody & Co. in the name of a family member, and on Nov. 11 - just two hours before Franklin First released its announcement halting trading - Mr. Gefsky bought 2,000 shares of Franklin First stock at $18.75 a share.

The Onbancorp. deal went through, and six days later Mr. Gefsky sold his 2,000 shares. His profit: $7,000. Last September, the SEC forced Mr. Gefsky to pay $15,604 and Mr. Ufberg to pay $7,000.

In another case settled recently by the SEC, a 67-year-old director of Colorado National Bankshares allegedly told his 70-year-old brother in California about an upcoming merger with First Bank Systems Inc. of Minneapolis in the fall of 1992.

The brother in California, Eugene E. Dines, allegedly bought 30,000 shares of Colorado National stock on the inside information, realizing a profit of $214,000 once the deal went through. The brothers neither admitted nor denied guilt but agreed to pay the government $654,847.

Family ties played a part in one of the more well-publicized bank insider trading episodes of recent years - the case of Rochester Community Savings Bank in New York. Robert B. Frame and his son, Duncan, last August agreed to pay the SEC close to $200,000 between them to settle insider trading charges. Six other people also were charged in the case, which stemmed from a failed merger in 1993.

What many of the people involved in these cases may have failed to realize is that regulators are better equipped now than ever to detect such misdeeds. On Nasdaq, for example, every trade, no matter how small, is filtered through its regulator's surveillance system.

In October, the National Association of Securities Dealers unveiled a $4.5 million, state-of-the-art surveillance tool, called Radar, which has dramatically sped up the collection and analysis of trading information. As a result, the regulator's 75 market analysts can handle many more cases than before, most of which are passed on to the SEC for investigation.

Even an informal survey of stock activity before takeover announcements appears to reveal suspicious trading activity. The American Banker looked at the stock of the selling institution in 25 of the most recent mergers involving community banks under $3 billion of assets.

In more than half of those deals, the stock of the target bank either climbed by at least 10% or traded several times more heavily than its average in the days before the deal was publicized.

For example, in the three days before Charter Bancshares of Houston announced at the end of January that it would be acquired by NationsBank Corp., more than 60,000 shares of its stock changed hands. Its average daily volume is 1,061.

To be sure, a fluctuating stock price doesn't necessarily mean insider trading. Rumors fly in small towns much more easily than in big cities. Representatives from an acquiring bank in town to perform due diligence on a bank it may acquire, for example, can stand out like a sore thumb.

"It's not like slipping in and out of New York City," said Mr. McGonigle, the banking lawyer. "The guys in suits can look fairly conspicuous sometimes, and people get to talking at lunch counters, and that's how these things get started."

Officials from First Washington could not be reached for comment on why their stock climbed before their merger last month.

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