Boesky Scheduled for Fraud Count Guilty Plea Today
Ivan F. Boesky, the renowned stock speculator who has won greater fame as the biggest trafficker in illegal inside information ever exposed, will plead guilty today in federal court here to a single felony count, according to federal court documents and lawyers familiar with the case.
Boesky’s plea, which is expected to be for one count of securities fraud, will fulfill one of the conditions of his settlement last November of federal insider-trading charges.
On Nov. 14, the Securities and Exchange Commission announced that he had settled civil charges by agreeing to pay $100 million in fines and penalties, consenting to being permanently banned from the U.S. securities industry and filing the guilty plea. He also agreed to cooperate with further investigations.
A fraud charge would carry a maximum sentence of five years in prison and a fine of $250,000, but Boesky is not expected to be sentenced for months, or until he completes testifying before federal authorities and the cases against those he implicates are under way. The delay, lawyers say, is designed to ensure that he remains cooperative and that his testimony remains truthful.
Boesky’s settlement not only destroyed his own career but has been instrumental in destroying several others. Sources say his testimony before the SEC to the U.S. attorney’s office here has been responsible for the cases against at least three other persons who have since pleaded guilty to fraud and related charges.
They are Boyd L. Jefferies, the founder of the institutional brokerage Jefferies & Co.; Michael Davidoff, a former trader for Boesky himself, and Martin A. Siegel, a former mergers specialist at the firm of Kidder, Peabody & Co.
Jefferies pleaded guilty April 16 to two criminal counts. One related to an agreement he had with Boesky through which he held shares that Boesky wished to secretly accumulate in takeover targets. The arrangement, known as “parking,” was illegal because it enabled Boesky to evade laws requiring him to disclose large holdings of stock and to maintain a minimum level of net worth at his own securities firms.
Davidoff, Boesky’s former director of trading, pleaded guilty early this year to a felony charge related to technical violations of securities laws and earlier this month settled related SEC charges.
Siegel pleaded guilty Feb. 13 to one count of conspiracy to commit fraud and one of tax evasion. Simultaneously, he settled related SEC charges alleging that from 1982 through 1984 he tipped Boesky to impending takeover deals concerning at least four companies. Boesky made $33.4 million on those four transactions, the SEC said; in return, he paid Siegel a total of $700,000 in cash, delivering the money in briefcases to Siegel through intermediaries.
Siegel himself implicated three colleagues in what he said was a scheme to swap inside information. They are Richard B. Wigton, head of arbitrage at Kidder, Peabody; Timothy L. Tabor, a former arbitrageur at the firm, and Robert M. Freeman, the head risk-arbitrageur at Goldman, Sachs & Co., who were charged with conspiracy and fraud.
Court Date Set
Those three defendants are fighting the charges, on which a trial date of May 20 was set Wednesday. However, Assistant U.S. Atty. Neil S. Cartusciello on Wednesday told U.S. District Judge Louis Stanton, who will preside, that the government will ask a grand jury to issue a “superseding indictment” against the three men in May.
The existing indictment of Wigton, Freeman, and Tabor was unexpectedly weak, lawyers familiar with the cases said. Specifically, options trades it contended were made by Wigton and Tabor on the basis of secret tips from Freeman actually occurred after the information in question had been publicly disclosed. That meant the government’s case would have to rely heavily on Siegel’s testimony that illicit information passed between the two firms.
Boesky’s own settlement appears to have brought to a close one of the most celebrated, if brief, careers in Wall Street history. Having begun as an obscure trader in a small and failing brokerage house, Boesky emerged in 1976 as one of the securities industry’s most aggressive risk-arbitrageurs. The term denotes a speculator who deals largely in takeover-related stocks.
At first he was bankrolled by the family of his wife Seema, whose father, Ben Silberstein, was the owner of the Beverly Hills Hotel. As time passed, however, Boesky attracted a following among leading businessmen who provided capital for his growing trading interests. Boesky also became a business world celebrity, often orating on the benefits of the massive “restructuring” to which American corporations were subjected by the wave of hostile takeovers that occurred in the 1980s.
As it turned out, Boesky’s vaunted profits were based more and more on the advantage he gained from illegal tips from investment bankers serving companies engaged in takeovers. One of these was Dennis B. Levine, a mergers specialist at three firms, who was charged last May with having turned a $12-million profit on illegal trading. Levine has since begun serving a two-year prison term.
In bargaining with federal prosecutors, Levine said he had passed Boesky tips for money according to an elaborately worked out profit-sharing plan. Boesky himself later cooperated with authorities by taping his conversations with others, implicating them in possible illegalities. His permanent bar from the securities industry means that he will not be able to raise money from others to engage in stock or bond trading but may do so with his own funds.
In addition to his possible federal sentence, Boesky faces multiple legal problems. Several corporations whose stocks were subject to his illicit trading are contemplating suits against him; one, brought by Chicago-based FMC Corp., was dismissed by a judge this month, but the company says it will appeal. He also faces lawsuits from former investors in his own firms and from shareholders in other corporations.
