‘85 Takeover Battle With Pickens : Unocal Sues Goldman, Sachs Over Allegedly Tainted Advice
Unocal, whose bloody 1985 battle against takeover artist T. Boone Pickens Jr. has turned up key evidence in the ongoing Wall Street insider trading scandal, Tuesday sued the investment banking firm of Goldman, Sachs & Co. for allegedly giving it tainted advice during Pickens’ failed takeover attempt.
The suit, filed in Superior Court in Los Angeles, alleges that Goldman, Sachs secretly acquired a stake in Unocal’s common stock during the takeover battle and therefore could not have offered the oil company unbiased advice on fighting Pickens.
The legal action also names four indicted Wall Street traders and the investment banking firm of Kidder, Peabody & Co. for allegedly profiting from insider information provided by Goldman, Sachs about Unocal’s anti-takeover defense strategy. Unocal asked the court to award it a total of $2.43 billion in damages.
Goldman called the charges “frivolous” and said it intends to defend itself “vigorously.” Kidder had no immediate comment, and the individual defendants could not be reached Tuesday.
The action by Los Angeles-based Unocal, parent of Union Oil of California, is the latest of several suits arising from the Wall Street scandal and comes just a day after a Chicago judge dealt a setback to such cases by dismissing a suit brought by FMC Corp. against former stock speculator Ivan F. Boesky and others.
But Unocal said its case differs substantially because of the allegation that Goldman, while advising Unocal, hid the fact that it had accumulated an arbitrage position in Unocal and used insider information to conduct trading in Unocal stock. (Arbitrage is a form of speculation in stocks of companies considered to be takeover targets.)
Unocal Chairman Fred L. Hartley declined to comment on the suit. But success in court would be especially satisfying to the longtime Unocal boss, an outspoken critic of the investment bankers and corporate takeovers. He previously hinted that Unocal might take legal action arising from his confrontation with Pickens.
Named as defendants in addition to the investment firms were Robert M. Freeman, who was head of the arbitrage unit at Goldman; his counterpart at Kidder, Richard B. Wigton; Timothy L. Tabor, a vice president of Kidder, and Martin A. Siegel, head of mergers and acquisitions at Kidder.
A week ago, Freeman, Wigton and Tabor were indicted by a federal grand jury in New York on four felony counts stemming from the Unocal case. All have denied wrongdoing. Siegel pleaded guilty Feb. 13 to felony counts of illegal stock trading and tax evasion.
The suit claims that Freeman provided confidential information about Unocal’s plans to Siegel, Wigton and Tabor, who then used it to make profits for Kidder’s own accounts and the accounts of some clients.
Specifically, Goldman’s arbitrage department exercised options to buy 150,000 shares of Unocal stock in the spring of 1985 at the same time that Goldman was advising Unocal on how to fend off Pickens, the suit claims.
By following advice allegedly inspired by the desire for personal and professional profit beyond the normal fees received by investment bankers, Unocal says it paid too much--$3.6 billion--to buy back 50 million shares of its own stock. That was the step that ultimately drove Pickens off, but it left Unocal with a heavy debt that still plagues the company.
Unocal asked for $750 million in damages as a result of the stock buyback. That and a demand for $1.5 billion in punitive damages constitute most of the compensation asked in the suit.
It also asks $50 million from Freeman; $5 million each from Siegel, Tabor and Wigton; the recovery of $2 million in profits and fees earned by the defendants from the purchase or sale of Unocal shares based on the confidential information, and $17 million in fees paid by Unocal to Goldman.
