Brokerage’s Future May Hinge on Ability to Retain Loyalty of Founder’s Clients : Boyd Jefferies: Workaholic Barred From Firm He Built

Boyd L. Jefferies’ announcement Thursday that he had agreed to plead guilty to securities violations and resign from his Los Angeles-based brokerage marks the downfall of a master stockbroker and innovator.

The news from the 56-year-old entrepreneur dumbfounded some associates and admirers who knew him for his legendary devotion to job and clients. “I always thought he was a straight shooter--aggressive but on this side of the law,” said one professional money manager in New York.

In tears, his voice breaking, Jefferies dropped the news to his staff early Thursday morning. In the statement to employees and stockholders, he wasted no time getting to the point.

“It is with deep personal sorrow and regret that I announce my resignation as chairman and chief executive of Jefferies Group and Jefferies & Co.,” he said. “For 25 years, Jefferies has been my life. I am proud of the organization we have built together; I know that the company will continue to grow and maintain its leadership position in our industry and in the market.”

Meanwhile, at Jefferies Group offices in downtown Los Angeles, security guards turned away journalists trying to go up to the company’s 33rd-floor corporate headquarters in the Union Bank building.

Boyd Jefferies made his company the dominant force in so-called “third market” trading. It is known as the place big investors go to trade big blocks of stock off the floors of the major exchanges, often after the exchanges have closed. The company was controversial for helping corporate raiders acquire big blocks of target firms’ stock.

One client said he used Jefferies because it was willing to trade in anything almost anytime. “You could always go to Jefferies and get a bid,” the client said. “That didn’t mean you would accept it, but they would always make you an offer.”

“He (Boyd Jefferies) was the best there was in the block (trading) business,” another associate said. “Nobody worked as hard as he did. That was his game.”

In fact, insiders said, Boyd Jefferies acted more as a chief trader for the company than he did as chief executive. He was a star salesman, accounting for 2% to 2.5% of its gross commissions in 1986.

Friends and clients described Boyd Jefferies’ downfall more as a shame and personal tragedy for the man than a setback for his firm. They said they had a hard time picturing Boyd without his business. He was a workaholic, often rising at 1:30 a.m. in his Laguna Beach home and getting to work by 3 a.m., not leaving until as late as 6 p.m.

Minneapolis takeover specialist Irwin L. Jacobs--a major Jefferies customer--said he would call the company as early as 3 a.m. and Boyd Jefferies would answer the phone, having come in to trade in European stocks. “There were no such thing as hours for Boyd,” Jacobs said. “You could find Boyd seven days a week, 24 hours a day.”

“From what I know of his work habits, it’s a very serious blow to him. I don’t think anybody loves the securities business more than he does,” said an institutional client, who asked not to be identified. Most people, if barred from the securities business for a few years, would find something else to do, the client said, adding: “I don’t know if he’s the type that can do that.”

Jefferies was devoted to his clients, a trait that made him one of the best and most popular salesmen on Wall Street.

A Los Angeles securities attorney remembers seeing the executive on a plane trip to Indianapolis to watch the Memorial Day 500-mile auto race. “He had his customers with him, and he really took care of them,” the lawyer recalled. “In a non-flashy way, he made sure they had a tremendous time.”

Lives on Opulent Scale

Fabulously rich, Boyd Jefferies owns a $5-million home in Laguna Beach that overlooks the Pacific Ocean as well as a $1-million condominium in Indian Wells near Palm Springs.

In what little spare time he had, Jefferies liked to ski and play tennis and golf, client Jacobs said. “He played sports like he worked--hard,” Jacobs said.

After weekends in the desert, Jefferies would leave Indian Wells at midnight on Sunday--and head directly into the office in downtown Los Angeles.

Jefferies’ plan to build a new home in a posh section of Indian Wells recently fell through in what was perhaps a hint of the problems to come. When a fellow country club member asked Jefferies what had happened, he is said to have replied: “Well, sometimes less is better.”

Series of Setbacks

Thursday’s announcement was the latest in a series of blows that Jefferies and his companies have suffered in recent months.

The troubles began in late November when it was disclosed that Jefferies and his companies had been subpoenaed by federal authorities in connection with the insider trading investigation involving professional speculator Ivan F. Boesky.

Then, late last month, Jefferies Group announced that the SEC had questioned the company’s bookkeeping methods last year in accounting for a $5-million settlement over a disputed securities transaction.

Though company insiders say that Jefferies & Co. will be ably run by Frank E. Baxter--who was named Thursday to replace Boyd Jefferies as chief executive--outsiders questioned how the company’s important clients will take the news.

Client Loyalty

Baxter “is a strong executive in his own right, but the real question is: Will he be able to retain the loyalty of Boyd’s clients?” said Perrin Long, analyst for Lipper Analytical Securities in New York.

“We’d be concerned whether or not this triggers a whole group of defections,” an institutional client and shareholder said. The key will be whether Baxter “can keep his trading group together.”

But several clients rushed to the firm’s defense Thursday. As long as it retains its crack trading staff, clients said they will remain loyal.

“This won’t diminish them, there are too many good people there,” Jacobs said. “No question Boyd was a workaholic, a motivator and a driving force, but in no way do I believe this jeopardizes the Jefferies company.”

Day-to-Day Role

Clients and company officials said that Baxter, in effect, has been running the company for the last few months since Boyd Jefferies was subpoenaed. And there has not been any noticeable decline in the firm’s business since then, they said.

Baxter was described by one company official as more low-key and subtle than the hard-driving Jefferies, but also as a skilled trader who understands back-office accounting and processing functions.

Baxter, who became president of Jefferies Group last year, was largely credited for starting the company’s London trading office in 1985 and making it profitable within three months, the official said. Baxter also helped build up the firm’s New York office.

And although the firm is not well liked by established Wall Street firms, they may find it difficult to fill Jefferies’ market niche, clients said. Jefferies & Co. can buy and sell stocks listed on the New York Stock Exchange during off hours because it is not an NYSE member. Other firms may not want to give up their memberships on the exchange.

Possible Takeover Target

Meanwhile, some clients and shareholders speculated that Jefferies could become more attractive as a takeover target. At its Thursday closing price of $11 a share, the firm is trading at about its net worth per share--far lower than the stock prices of many other brokerage firms, an institutional client and shareholder said.

“Maybe it’s for sale,” he said. “There are an awful lot of possibilities.”

Company employees have been instructed not to buy any company stock until further notice, sources close to the firm said. Company officials do not want employees capitalizing on the firm’s depressed stock price, fearing that that might cause problems with regulatory authorities, one source said.

American Can, Jefferies Group’s largest shareholder with securities convertible into 20% of the company’s common stock, is making a major push into financial services and could be interested in acquiring more shares, shareholders suggested. Or other suitors may enter the fray. A spokesman for American Can declined to comment Thursday on Jefferies’ troubles.

Boyd Jefferies told his employers and stockholders Thursday that he hoped the scandals shaking Wall Street would ultimately prove positive.

“Let me add my voice,” he said, “to the growing number of people who are urging that the increasingly tragic results of trading irregularities, which are being uncovered on a daily basis, be used in a positive way to help improve and enhance our capital markets. Something went wrong with our value systems and it is vital that we all learn from my mistakes and those of others.”

Main story, Part I, Page 1