Charges of Insider Trading for a Wall Street Luminary

John F. Marshall spent decades teaching at business schools and watching his students parlay his lessons into fortunes on Wall Street. But when he and another professor reached for some of those riches themselves, events took a startling turn, the authorities say.

Dr. Marshall, a retired professor at St. John’s University and a fixture on the Wall Street lecture circuit, was accused by the Securities and Exchange Commission in March of passing inside information about a multibillion-dollar corporate takeover to a professor at Pace University. The Pace professor, Alan L. Tucker, made more than $1 million trading on the tips in 2007, according to the S.E.C. The Justice Department has filed criminal charges.

The developments have stunned Dr. Marshall’s former colleagues and students, who describe him as a meticulous scholar and a generous, unassuming teacher. The accusations have also jolted Wall Street, where Dr. Marshall is considered one of the wise men of financial engineering.

“I am just shocked beyond belief,” said Jennifer Kim, a St. John’s graduate who was taught by Dr. Marshall. “If he wanted to, he could have made money — lots of money — years ago.”

Suspicious trading has set off alarms at the S.E.C. during the record rush of corporate takeovers in recent years. Since 2006, the agency has filed more lawsuits related to insider trading than during the entire decade of the 1990s.

But the usual suspects are bankers, analysts and executives — not academicians like Dr. Marshall, the author of books like “Financial Engineering: A Complete Guide to Financial Innovation.”

Yet, like many business school professors, Dr. Marshall, 56, and Dr. Tucker, 47, built twin careers by hopscotching from teaching to consulting. Dr. Marshall’s stature in the field of finance eventually lead a board position at a fledgling electronic exchange for stock options — a position the S.E.C. said he had used to pass illegal tips to Dr. Tucker, a friend and business associate. The men declined to comment for this article.

It’s a remarkable turnabout for Dr. Marshall, who co-founded the leading professional society for practitioners of financial engineering, the International Association of Financial Engineering, the math-heavy discipline that revolutionized Wall Street in recent years.

Ms. Kim recalled how her former professor gave away complex computer software to his students. Dr. Marshall helped establish a graduate program in financial engineering at Polytechnic University in Manhattan and fostered the explosive growth of financial derivatives. He also became a popular lecturer at banks like Goldman Sachs , Deutsche Bank and Merrill Lynch .

Few people on or off Wall Street moved in such rarefied financial circles. During a long, distinguished career, Dr. Marshall mixed with Nobel laureates like Myron S. Scholes, Fischer Black and Franco Modigliani — whose pioneering theories transformed the world of finance — while he himself lived modestly on Long Island.

“Everybody loves Jack Marshall” said David F. DeRosa, president of DeRosa Research and Trading and a former Wall Street trader. “He is like the uncle of derivatives.”

In an essay published in the 2007 book, “How I Became a Quant,” Dr. Marshall wrote that his work on Wall Street had informed his academic research.

“What I was seeing during the day in the Street was growing increasingly at odds with what I saw being taught in business schools,” Dr. Marshall wrote. “Most of academia was missing the great transformation that was taking place in finance.”

He recruited Dr. Tucker to help edit the financial engineering society’s journal, and together they proposed new types of options that companies might use to protect themselves from economic downturns. The pair also opened a small consulting firm in Port Jefferson, N.Y.

CONTINUED : Bridging the gap with practical applications

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