Rohatyn Calls for Takeover Abuse Curbs

Investment banker Felix G. Rohatyn told a congressional hearing Wednesday that changes should be made in corporate takeover laws to curb abuses he said were threatening the U.S. financial industry.

“We in the financial community have to face a hard truth, there is a cancer threatening our industry. The cancer is called greed,” Rohatyn, a partner in Lazard Freres & Co., said in testimony to the Senate Banking Committee.

“It is specifically focused on the recent wave of huge ‘junk bond’-financed takeovers and on the various activities related to them,” he said. “Its most deeply disturbing aspect, so far, has been the Ivan Boesky affair.”

Ivan F. Boesky agreed to pay $100 million last November to settle charges brought by the Securities and Exchange Commission that he had used inside information to make a profit on unannounced takeover attempts.

Rohatyn said the abuses were threatening the integrity of the U.S. securities markets, the safety of financial institutions and diverting capital needed for economic growth.

He called for limits on the amount of below-investment grade high-yield paper, known as junk bonds, which can be carried by financial institutions, a higher standard of care and prudence from those investing in this type of paper and a minimum period of perhaps a year before shareholders could vote on major corporate matters.

Rohatyn also said abusive defensive tactics against takeover attempts, such as “greenmail”--the paying of above market prices by a company to buy back stock from a raider--should be curbed.

Nicholas Brady, chairman of Dillon, Read & Co., also said there had been abuses, such as insider trading (the illegal use of privileged information). But he did not think that sweeping changes in takeover laws were needed.

“We should not confuse insider trading with the regulatory framework that governs the actions of bidders, targets, management and other participants in takeovers. That regulatory framework is basically sound and has by and large done its job,” Brady said.

“I believe that ‘it ain’t broke, so don’t fix it’,” Brady said.