Boesky Case Blows Whistle on Wall St. : Prosecutors Say Criminal Conduct Rampant in Securities Trade

In perhaps the harshest governmental description of Wall Street conduct in recent memory, federal prosecutors have said that stock speculator Ivan F. Boesky’s “unprecedented” cooperation with them has provided evidence of “rampant criminal conduct” in the securities industry.

“Not since the hearings and passing of the 1933 and 1934 securities laws has the government learned so much at one time about securities laws violations,” the office of U.S. Atty. Rudolph Giuliani wrote in a memorandum to District Judge Morris E. Lasker, who is scheduled to sentence Boesky on Friday. The memorandum was released Monday with about 40% of its text blanked out, apparently to protect the confidentiality of continuing investigations.

Boesky, who pleaded guilty to a single felony count of conspiring to make false statements to the Securities and Exchange Commission, faces a jail term of up to five years. Last year, he admitted civil charges of insider trading and agreed to pay $100 million in fines and penalties to the SEC.

Lasker has already indicated in a pre-sentencing hearing that he will sentence Boesky to at least six months in jail. The only other guideline to Boesky’s possible term is the sentence of former investment banker Dennis B. Levine, a Boesky associate, who earlier this year was sentenced to two years in jail. Unlike Boesky, however, Levine refused to cooperate with prosecutors until after he was arrested on insider trading charges.

The prosecutors made no specific sentencing recommendation to Lasker beyond asking the judge to consider not only his criminal conduct but his “outstanding cooperation.”

The extent of Boesky’s contribution to the criminal cases cited by the government has been largely known. These cases include charges against Los Angeles stockbroker Boyd L. Jefferies that he “parked” stock for Boesky, a maneuver that involves disguising the ownership of extensive stock holdings; and charges that former investment banker Martin A. Siegel passed Boesky inside information about merger deals. Jefferies and Siegel pleaded guilty to securities law violations.

Among other things, Siegel later testified about an alleged illicit insider arrangement between his associates at Kidder, Peabody & Co. and his opposite numbers at Goldman, Sachs & Co.

Boesky also has assisted British authorities in their case against executives and investment bankers who illegally helped Guinness PLC take over Distillers Co. That case involves charges of insider trading, obstruction of justice and other wrongdoing. Among those already charged in that case are former Guinness Chairman Sir Ernest Saunders and Gerald M. Ronson, another prominent London businessman.

Boesky urged his own employees to cooperate with the U.S. attorney’s office and the SEC, leading to further investigations, the memo states.

In all, the prosecutors said, Boesky “directly and indirectly . . . revealed that criminal conduct is at the heart of a substantial amount of market activity by established securities industry professionals.”