‘Most Shareholders Want Their Money Back’ : A British Boesky Fund Will Go Out of Business
Amid worries in London securities markets about increasing incidents of insider trading, an investment fund formerly run by professional speculator Ivan F. Boesky has decided to sell its portfolio of stocks, effectively liquidating the company.
E. D. G. Davies, one of three British directors of Cambrian & General Securities PLC, said that Boesky’s presence was the primary reason shareholders had invested in the fund and “that it must follow that most shareholders want their money back now that he’s gone.” Cambrian & General, which is traded on the London Stock Exchange, is the only Boesky investment fund for which a stock price is publicly quoted.
Boesky, who was perhaps the most prominent professional speculator in the United States, resigned as chairman and a director of Cambrian & General last week before the board meeting and in the wake of his agreement to pay $100 million to settle insider trading charges brought by the Securities and Exchange Commission.
Eight remaining directors--three American, three British and two French--have severed the company’s only remaining major connection with Boesky by ending his role as assets manager. They also appointed the London investment bank S. G. Warburg & Co. as corporate adviser and announced plans to hire a new investment manager “as quickly as possible.”
A spokesman for the London Stock Exchange said Monday that trading in Cambrian & General Securities stock, suspended last week, will not resume until the new investment manager is named.
The fund, whose only physical presence in Britain is a mailbox in a small town 50 miles south of London, counts some of the country’s most prestigious institutions among its shareholders, including London & Manchester Assurance and Sun Life Assurance.
$195-Million Liquidation Value
The liquidation value of Cambrian & General’s stock portfolio, estimated at $195 million, is roughly 40% more than its current, frozen value on the stock market. This difference, typical of many other “closed end” funds for which prices on the stock market does not fully reflect liquidation values, is viewed as a key reason why the board decided to liquidate.
Davies noted that any decisions relating to the company’s future were clouded by the uncertainty of legal action already lodged against Boesky and his assets, including Cambrian & General Securities.
However, Davies said that initial investigations have indicated none of the company’s dealings were made with insider knowledge. “In our first cursory check, it appears we don’t seem to have fallen afoul of the rules on insider trading,” he said. “But we have to do a complete, thorough audit to be certain.”
Cambrian & General Securities’ most recently published annual accounts, for the year ending Sept. 30, 1985, listed among its largest equities holdings shares in General Foods ($48 million), Gulf & Western Industries ($40 million) and Boise Cascade Corp. ($17 million)--all stocks in which Boesky is known to have actively traded. His trading in General Foods and Boise Cascade is mentioned in the SEC’s charges.
The company’s report also showed an accumulation in 1985 of more than $33 million in Warner Communications stock and nearly $23 million in shares of American Broadcasting Cos. ABC agreed to be acquired by Capital Cities Communications in March, 1985.
Mounting Concern in London
Boesky bought into Cambrian & General Securities in 1982 and at the time scandal overtook him earlier this month, his personal stake was valued at about $45 million, or just under 25%.
The Boesky affair has unfolded against a backdrop of mounting concern in London about how best to deal with insider trading after markets here were deregulated Oct. 27.
Investor jitters in the wake of the scandal caused London share prices to tumble early last week, although in the past two days of trading, the market has recovered some of the lost ground.
Historically, the London markets have been self-policing, relying on non-statutory bodies that appealed to the fair play of the “gentlemen” who conducted business here.
But the increased dangers of abuse posed by deregulation, coupled with the sharp rise in the number of foreign participants with no strong loyalty to “Old Boy” discipline, have led to the creation of London’s first statutory body, the Securities Investment Board, to monitor trading.
Critics say that the board’s powers are insufficient.
Although legislation arming the board with its statutory powers is still being debated in Parliament and is unlikely to be passed for several months, the government earlier this month took the unusual step of rushing through those portions of the bill dealing with insider trading.
These measures, which toughen government powers to investigate and prosecute insider trading cases, were invoked after a senior executive of the respected British investment bank Morgan Grenfell was forced to resign after insider trading allegations.
The bank’s director of securities, 35-year-old Geoffrey Collier, allegedly pocketed $22,000 when he bought shares of an engineering group just before the announcement of a takeover bid for the group being handled by Morgan Grenfell.
Collier, who resigned Nov. 10, has reportedly threatened to name other leading figures in the London financial community. His actions are currently the subject of an investigation by the British Department of Trade and Industry. If convicted, he faces a maximum two-year prison term.
A few days after Collier resigned, the brokerage house of Scrimgeour Vickers, a Citicorp subsidiary, reported to the London Stock Exchange that it had apparently handled an insider deal placed by an employee of a company that, within hours of the transaction, announced a takeover bid.
Although U.S laws against insider trading date to the 1930s, the practice was only made illegal in Britain six years ago. Since then, stock exchange officials say they have passed more than 100 cases on to the government for investigation, but only nine of these have been prosecuted. Of those, four ended in conviction.
“The convictions have all been fairly small fries,” admitted a spokeswoman for the Trade and Industry Department, which under British law investigates insider trading cases.
On Monday, the debate over insider trading entered Parliament, where the opposition Labor Party has long accused the governing Conservatives of being reluctant to impose tougher measures to control dealing in financial markets.
A Labor member of Parliament, Brian Sedgemore, demanded legislation that would require share buyers to register the beneficial owner of the shares, while a colleague, Robin Cook, asked the government to disclose all information relating to the Boesky scandal that it has received from the SEC.
“Investigations stand a much greater chance of success if not conducted in the full glare of publicity,” Trade and Industry Secretary Paul Channon replied.
