Several Companies Consider Suing Boesky Over Trades
Several companies whose shares were identified by federal authorities as the object of illegal trades by stock speculator Ivan F. Boesky are contemplating civil lawsuits against him and some of his associates.
Among the corporations reviewing the Securities and Exchange Commission complaint against Boesky for evidence that his trades cost their shareholders money are Enron Corp., the product of a 1985 merger between Houston Natural Gas and Internorth; Coastal Corp., which acquired American Natural Resources in a 1985 deal, and FMC Corp., which undertook a 1986 restructuring that included a share repurchase.
Among the SEC’s contentions in its Nov. 14 insider trading complaint against Boesky was that he relied on illegal inside information to acquire or hold shares of Houston Natural Gas, American Natural Resources and FMC. The source of the illegal tips, the SEC said, was Dennis B. Levine, at the time a mergers and acquisitions specialist for the investment firm of Drexel Burnham Lambert.
Boesky settled the case by agreeing to a $100-million penalty and a guilty plea to a federal felony charge. Legal authorities have said that Boesky, Levine and some of their associates may also be liable to civil suits from investors and corporations contending they were injured by the defendants’ illegal stock trades.
Anheuser-Busch Case Is Model
The model for such litigation is a pending suit filed by Anheuser-Busch in April, 1985, against W. Paul Thayer, one of its former directors. The suit alleges that Thayer encouraged four associates to purchase stock in Campbell-Taggart on the knowledge that Anheuser was about to bid for the company. The subsequent rise in Campbell-Taggart’s stock price forced Anheuser to pay $80 million more for the company than it had planned, the suit contends. Thayer last year pleaded guilty to obstruction of justice in connection with an insider trading case brought against him by the SEC and Justice Department in the matter.
FMC Corp. announced Tuesday from its Chicago headquarters that its board has formed a committee to study the prospects of suing Boesky and others.
In its complaint against Boesky, the SEC charged that he purchased 95,300 shares of FMC from Feb. 18 to Feb. 21, 1986, relying on Levine’s tip that the company was planning a recapitalization plan that included repurchasing some of its shares. Levine’s information came from a contact of his at Goldman, Sachs & Co., which was preparing the FMC plan.
The company announced its repurchase program on Feb. 22; by then, its shares had risen more than $14 to more than $85 from the week before, when Boesky began buying. The rise may have been partially inspired by market rumors that he was acquiring shares, although more than $4 of the increase came on Feb. 21, after FMC announced that it was planning a recapitalization but before it described its terms. Boesky ultimately turned a profit of $975,000 on his trades.
The actual cost to FMC of Boesky-inspired speculation cannot easily be determined, but the $14-a-share jump added $364 million to the company’s market value.
Legal authorities say companies forced to raise their takeover bids because Boesky’s trades drove up the price of their targets might have a case against the trader.
At Coastal Corp., the acquirer of American Natural Resources, a spokesman said that “all the ongoing developments are being carefully monitored by our attorneys and executives.”
The spokesman, Robert Wells, added: “Should some information turn up that Coastal shareholders were damaged, we’d certainly consider taking appropriate actions.”
Coastal acquired ANR for $65 a share on March 15, 1985, two weeks after making an initial bid of $60. Although the SEC does not say when Boesky bought his shares, it has alleged that Dennis Levine began accumulating ANR stock as early as Feb. 14. Levine ultimately made $1.4 million on his trades.
A spokesman for Enron said its legal staff is “reviewing the situation to see if there are any grounds for action.”
