Founder of L.A. Brokerage Admits Illegal Boesky Deals : Jefferies Resigns, to Plead Guilty
Boyd L. Jefferies, the chairman and founder of the Los Angeles brokerage Jefferies & Co., resigned from the firm today and said he will plead guilty to two federal felonies, one of which is related to illegal stock transactions he executed with stock speculator Ivan F. Boesky.
Jefferies, 56, also consented to a Securities and Exchange Commission action barring him from the securities industry for at least five years.
Although Boesky is at the center of the largest insider-trading ring ever exposed, the federal charges against Jefferies do not include insider trading. Instead, Jefferies is charged with having helped Boesky engage in other illegal practices.
The charges against Jefferies, whose firm specializes in handling large, difficult stock trades for institutional clients who included many players in the corporate-takeover world, represent a major broadening of the federal investigation into illicit practices on Wall Street.
Other Targets Possible
Sources said they may also presage similar charges against a number of other major investment firms, including Drexel Burnham Lambert and the small but influential trading house of Jamie Securities.
Boyd Jefferies explained the charges to his employees today from New York in a tearful, cross-continental telephone address to the firm’s offices in New York and Los Angeles. His position as chief executive officer of the firm he founded 25 years ago will be assumed by Frank E. Baxter, who has been chief operating officer. The post of chairman will not be filled for now, Baxter said.
Jefferies’ guilty pleas will include one to a charge of aiding and abetting Boesky in making false bookkeeping entries on the books of Boesky’s firm and one to a charge of violating margin rules, the regulations limiting the amount of money that can be borrowed against securities.
Stock ‘Parking’ Alleged
According to government documents, Jefferies agreed to purchase large quantities of stock from Boesky’s own brokerage, Seemala Corp., secretly agreeing to sell the shares back to Boesky at a later date. Seemala also agreed to compensate Jefferies for any market losses the firm might incur in the securities, the documents indicate.
The procedure, known as “parking,” is illegal to the extent that it allowed Boesky’s firm to accumulate huge investment positions in companies while appearing to maintain the minimum financial net worth required by SEC standards.
In all, the SEC said, Boesky parked with Jefferies $56 million in securities of three companies: G. D. Searle, Cooper Laboratories, and Southland Financial. Jefferies also parked $47 million worth of securities with Boesky, the SEC said, largely so his firm would not be overextended in holding the three stocks parked by Boesky.
No Evidence of Profit
Jefferies & Co. and the SEC said there was no evidence that the firm profited from the Boesky arrangement. Boyd Jefferies, one source said, entered into the deal “to accommodate a client.”
During the period Jefferies held Searle stock for Boesky, the SEC said, the value of the stake fell by $3.6 million. Boesky covered the loss by paying Jefferies $3 million on a falsified bill for “investment advisory and corporate financial services.”
The charge of violating margin rules stems from a deal in which Jefferies agreed to heavily trade the shares of a company one day before its parent corporation made a public offering of stock in the subsidiary. The purpose was to raise the share price of the subsidiary to gain a better market price for the new offering.
