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Scandal on Wall Street

Wall Street legend had it that Ivan F. Boesky got rich spending long, lonely hours rummaging through corporate documents for obscure signs of impending corporate takeovers that he could cash in on. By Boesky’s own account, it turned out last week that at least $50 million of his recent income was due to a Wall Street insider who spared him all that research by telling him exactly what merger moves were afoot.

If the country is lucky the scandal will have consequences beyond the $100 million that Boesky will pay to the Securities and Exchange Commission in fines and penalties, his banishment from the securities business and a guilty plea to an unspecified felony charge that could put him behind bars. Boesky is naming names, presumably of other inside traders, to federal regulators; that in itself may scare Wall Street’s professionals enough to make them stop whistling “Anything Goes” on their way to work. Boesky himself said that if his case spurred a “reexamination of the rules . . . then perhaps some good will result.”

Boesky’s field is, or was, arbitrage--a high-risk specialty that historically involved buying stock of a company targeted for takeover and gambling that the takeover would go through and drive up the price of its stock. Recently it has branched out to anticipating takeovers before they are announced. Having inside information, of course, takes the gamble out of that aspect of arbitrage.

Boesky didn’t volunteer the information that he had broken the law that makes it illegal to speculate in stocks on the basis of information that is available only to insiders and not to the investing public at large. It came originally from Dennis B. Levine, the man who saved Boesky those hours of research and who has pleaded guilty to four counts of passing on inside information for which he earned more than $12 million in just under six years.

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The Boesky case would serve a cause even if it led to nothing more than an entire generation of securities specialists so nervous that they would go limp at the very thought of passing tips to friends or business associates.

But in the present mood of Wall Street an even more important reform could come of the Boesky case. Faced with a scandal so grand, not to mention the possibility of serving time, even Wall Street is bound to go through a period of soul-searching.

As part of that exercise, it should look toward changes in its operations that would make the handful of professionals who handle huge amounts of money each day less important to stock trading, and the average American more important. It must search for ways to make stock exchanges less like gambling casinos and more like what they should be--trading posts where Americans go to invest capital in productive enterprises.


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