Dow Plunges 43 on Fears of Widening Insider Probe : 4th Biggest Decline on Record
The Dow Jones Industrial average plunged 43.31 points today in unsettled trading after reports that speculator Ivan Boesky’s business transactions were wiretapped in the weeks before he paid a $100-million penalty for insider trading.
Today’s broad decline was the fourth-biggest drop of the Dow Jones average on record. The biggest single-day drop was 81.61 points on Sept. 11.
Declines led advances 5 to 1 on heavy volume of about 185.26 million shares.
Traders said spectacular declines in a number of takeover issues spilled weakness into the broader market, igniting further selling in the influential stock index futures market.
Nervous Selling
The decline began with nervous selling that started Monday, the first session after Friday’s late announcement by the Securities and Exchange Commission that Boesky had agreed to settle insider trading charges by paying $100 million.
The SEC also said Boesky had agreed to plead guilty to a felony count carrying a penalty of up to five years in prison. He is also barred for life from securities trading.
The biggest losers were stocks that had been inflated because of takeover-related activity. Those declines spread to other issues, but remained relatively restrained through noon today.
Traders said the dumping of takeover stocks triggered a broader descent in afternoon trading as programmed computer selling sent stock prices into a tailspin.
Especially hard hit in the broad sell-off were stocks of companies having direct lines to Drexel Burnham Lambert Inc., the investment firm which Monday said it had received a subpoena from the Securities and Exchange Commission seeking information connected to the Boesky probe.
More to Come
Wall Street was meanwhile bracing for further disclosures of wrongdoing that may have been turned up when Boesky reportedly donned taping devices to record conversations in the last few weeks.
Charles Carberry, assistant U.S. attorney in New York, said he would neither confirm nor deny widely published reports of the bugging. Other sources indicated that U.S. investigators had indeed used recordings of Boesky’s recent conversations with Wall Street associates.
Reports of the wiretapping sent jitters through Wall Street today amid speculation that other big names might soon become targets of the investigators.
Another fear in Wall Street is that some takeover artists would be tied up for months by investigations and would be unable to complete pending deals, or that legitimate companies would pull out of the multibillion-dollar investment funds that specialize in takeovers.
Speculative Stock
The funds, to raise cash, could be forced to sell off stocks bought in speculation of a takeover bid, further depressing the stocks, traders said.
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