Drive for Wall St. Regulations Gains : Boesky Tipster Admits Guilt and Pays $9 Million
One of the nation’s most prominent specialists in corporate takeovers was ensnared Friday in Wall Street’s widening insider trading scandal.
Martin A. Siegel, 38, pleaded guilty to criminal conspiracy and tax-evasion charges and agreed to turn over to the government $9 million in cash and other assets to settle civil charges that he was a paid tipster for speculator and confessed inside trader Ivan F. Boesky.
Siegel rose to prominence 10 years ago by devising bold and creative corporate takeover defenses and has worked on more than 500 mergers and acquisitions.
Siegel resigned Friday from his top executive job at the investment firm of Drexel, Burnham, Lambert Inc. after an emotional meeting with the firm’s top executives.
Although he has been working for Drexel as co-director of mergers and acquisitions since February, 1986, Siegel was charged with using stolen inside information to help another Wall Street firm, Kidder, Peabody & Co.--where he previously worked as its top mergers specialist--and illegally tipping Boesky.
Like many of those caught up in the scandal, one of Wall Street’s worst ever, Siegel has agreed to cooperate with the government’s investigation. It is widely believed in financial circles that Siegel, like Boesky, was wired by federal prosecutors and has turned over tapes of his conversations.
As government investigators laid out the Siegel-Boesky plot, it had all the intrigue of a spy novel.
Boesky is said to have drawn Siegel into the scheme in August, 1982. In return for Siegel’s stock tips, the Securities and Exchange Commission charged, Boesky dispatched an unnamed intermediary to an unidentified public place on three occasions between 1982 and 1984 where, after exchanging passwords, Siegel was handed a briefcase stuffed with cash.
In all, the SEC said, Boesky paid Siegel $700,000 for tips about deals on which Kidder, Peabody was working but had not yet made public. With the tips, Boesky made millions of dollars, the SEC said. After he was caught by federal investigators, Boesky implicated Siegel.
The charges against Siegel came a day after three other top-level Wall Street executives were arrested on charges of illegal insider trading. Those charged Thursday were Robert M. Freeman, a partner at Goldman Sachs & Co.; Richard Wigton, vice president at Kidder, Peabody; and Timothy L. Tabor, a former Kidder vice president.
Although none are accused of profiting directly from the inside information, they may have profited indirectly by receiving higher bonuses because of the additional profits they made for their firms.
After Thursday’s action, Wall Street had braced itself for the government’s latest disclosure. Siegel’s name had been mentioned repeatedly as a likely co-conspirator ever since the disclosure last November that stock speculator Boesky had masterminded a huge insider trading ring.
Siegel’s name surfaced again on Thursday as the probable informant who led the government to Freeman, Wigton and Tabor.
At 10 a.m. Friday, Siegel entered a federal courtroom here. Flanked by two lawyers, he sat with his head bowed and shoulders slumped, waiting 90 minutes while Judge Robert J. Ward cleared the court calendar of 22 other cases.
When Siegel was finally summoned, he struggled to keep his composure. Occasionally wiping away tears, he confessed to breaking federal securities laws.
Siegel said in a statement that none of his “misconduct” occurred while he was at Drexel. Before the government “had any reason to suspect my wrongful activities,” Siegel said, “I had already recognized my mistake and stopped my wrongful activities.”
The criminal charge of illegal information-swapping against Siegel is punishable by up to five years in prison and a $10,000 fine. The criminal tax evasion charge carries a maximum fine of $250,000 and a prison term of up to five years. Siegel admitted to underpaying 1985 taxes by $182,500.
Siegel was released on his own recognizance and is scheduled to be sentenced on April 2.
Siegel settled the SEC charges without admitting or denying wrongdoing. In addition to being barred from the securities business, he agreed to pay a sum that exceeds the profits he is accused of having made illegally. Siegel will pay the government $4.2 million in cash and turn over stock in Drexel and other investment interests worth about $5 million.
Although Drexel executives have said since November--when Siegel was subpoenaed in the Boesky matter--that Siegel continued to show up for work, informed sources said he recently moved himself and his family to Florida and has not been working on Drexel business since mid-December.
While at Kidder, perhaps Siegel’s most notable work was in the bizarre 1982 takeover fight that ended in Bendix Corp.'s acquisition by Allied-Signal Inc. Siegel represented Martin Marietta Corp., which was fending off a bid by Bendix. In a takeover tactic that came to be known as Pac-Man, Martin Marietta turned around and tried to take over Bendix. Bendix only avoided the takeover by selling out to Allied-Signal.
The SEC’s civil complaint accuses Siegel of having tipped Boesky to the plan by Martin Marietta to take over Bendix, yielding Boesky a profit of $120,000.
By the same arrangement, Siegel is charged with tipping Boesky to takeover-related information concerning Carnation Co., Natomas Co., Midlands Energy Corp., Pargas Inc. and Getty Oil Co. Boesky, in turn, made profits of about $28.3 million with the Carnation information, $4.8 million on Natomas and $220,000 on Getty. The SEC did not say whether Boesky profited from the Midlands and Pargas information.
In the Getty case, Siegel, then an adviser to majority Getty Oil shareholder Gordon P. Getty, allegedly told Boesky in September, 1983, that the Getty family was feuding over the oil company’s management. Boesky bought stock options in Getty, speculating that there would be a fight for control of the company. A takeover battle ensued, and Texaco acquired Getty.
The only deal identified in the criminal case concerns the 1984 takeover of Continental Group by Los Angeles businessman David Murdock and Peter Kiewit Sons Inc. Federal prosecutors charge that Goldman Sachs’ Freeman learned confidential information about the takeover talks from his employer, an adviser on the deal, and shared it with Siegel.
Siegel in turn bought “a large number of shares” of Continental for Kidder, Peabody’s account, prosecutors said.
Staff writer Tony Robinson contributed to this story.