Boesky Gets 3-Year Jail Term for Inside Trading : Judge Warns Business Community About Similar Activities
Ivan F. Boesky, the fallen stock speculator whose name has come to symbolize avarice on Wall Street, on Friday received a three-year jail term for having violated securities laws through insider trading and other illicit practices.
The term was less than the maximum five years that Boesky faced after he pleaded guilty in April to a single felony count of conspiring to make false statements to the Securities and Exchange Commission. The charge relates to allegations that he illegally aided the 1984 takeover of Fischbach Corp., a New York company, by financier Victor Posner.
Thayer Case Cited
Of convicted insider traders, only W. Paul Thayer, the former deputy secretary of defense charged with tipping friends to merger plans by Anheuser-Busch and Allied Corp., on whose boards he sat, has received a longer term. Thayer, who pleaded guilty to a charge of obstructing justice, was sentenced to four years in jail and served 19 months.
In Boesky’s case, U.S. District Judge Morris E. Lasker said that although the count carries a maximum penalty of $250,000, he chose not to impose a fine because Boesky’s remaining financial assets should be husbanded to pay civil claims from defrauded investors and stockholders.
Responding to defense arguments that Boesky has already been harshly punished by giving up almost all of his wealth to compensate his market victims and by facing lifelong vilification, Lasker remarked: “Some kind of message must be sent to the business community that such activities cannot be wholly repaired simply by repaying people after the fact.” Of Boesky’s offense, he said that “its scope was too great, its influence too profound, its seriousness too substantial merely to forgive and forget.”
Once Wall Street’s leading “risk arbitrager,” a stock trader who speculates in shares of companies involved in takeovers and other major transactions, Boesky, 50, is scheduled to begin serving his term next March 24.
Although no prison has been selected, he has asked to be sent to the federal prison in Lompoc, Calif., because, as one of his attorneys told Judge Lasker at a hearing Dec. 3, “there are no people in the trading business out there.”
Eligible for Parole in Year
Under the rules governing his sentence, Boesky will be eligible for parole after one year and is likely to be released, assuming good behavior, after two.
The sentence follows weeks of maneuvering by prosecutors and defense attorneys striving to place his crimes, which include participating in the widest ring of insider trading ever exposed on Wall Street, in context with what prosecutors call his “unprecedented” testimony about his and others’ wrongdoing. Among other things, he taped telephone conversations and wore hidden recorders to personal meetings that implicated colleagues.
Leon Silverman, Boesky’s lead attorney at Friday’s session, contended that his client has implicated five major securities firms and 18 individuals still under investigation. It was unclear if Silverman’s numbers include people and firms already exposed publicly. U.S. Atty. Rudolph W. Giuliani, whose office prosecuted the trader, declined to comment.
Among those known to have been implicated by Boesky are former investment banker Martin A. Siegel and former Los Angeles stockbroker Boyd L. Jefferies. Both pleaded guilty this year to felony violations of securities laws and have aided further investigations.
Helped in Takeover Probe
Boesky also helped investigators unravel illegalities in the takeover campaign in Britain of Guinness PLC for Distillers Co., which has developed into the largest insider trading case to be exposed in that country. U.S. investigators say the SEC is investigating “dozens” of individuals implicated by Boesky.
Some investigations reportedly center on the activities of the securities firm Drexel Burnham Lambert and its head of “junk bond” trading, Michael Milken. Boesky was a Drexel client, but no charges against the firm or Milken have been filed in the 13 months since Boesky was brought down.
Formerly one of Wall Street’s most self-possessed grandees, Boesky arrived for his sentencing shortly after 9 a.m. He emerged from a black limousine at the front entrance of the federal courthouse into a phalanx of six private security men. Once inside the building he was escorted by U.S. marshals to the third floor and walked into the courtroom between two lawyers just before Lasker took the bench.
Grim-faced as ever but without the frosty smile it was once his custom to flash, Boesky sat motionless in his midnight blue suit, flanked by lawyers, while prosecutor John Carroll and defense counsel Silverman made final pre-sentencing statements.
Refers to Earlier Remarks
Asked by Lasker on Friday if he wanted to make a statement, the defendant referred to his remarks at the Dec. 3 hearing, at which he said: “I would like the opportunity as I go forward to redeem myself and leave this Earth with a good name.” Then he added in a baritone murmur, “I expressed my profound sentiment to you” at the earlier session and had nothing to add.
He stood impassively to receive his sentence and was presently escorted out the way he came, walking with his bodyguards down the courthouse’s granite front steps between two rows of raucous television cameramen kept in check by police barriers. He got into a four-door Subaru sedan at the bottom and was driven off, trailed for about a block by scampering TV crewmen.
Silverman later said that Boesky considered the sentence “fair” and “accepted” it.
The length of the jail term had been the focus of considerable conjecture on Wall Street in recent weeks. Securities lawyers argued it should be not so lenient that the public might conclude white-collar criminals are continuing to get off easily and not so harsh that wrongdoers would find no incentive to come forward, confess their crimes and cooperate with investigators.
Through his attorneys, Boesky had requested a jail term of only six months combined with 3,000 hours of unpaid community service.
Term Satisfies Giuliani
The sentence appeared to satisfy Giuliani, who called it “a heavy sentence . . . in the real world of what happens in the federal courts.” He said some 50% of all defendants convicted in the federal courts receive no jail term, adding that Boesky’s term was in “the top 20%” of sentences.
Securities lawyers in New York generally remarked that Lasker’s sentence would help encourage wrongdoers to cooperate with authorities. “He’s sending a message that if you come in and cooperate, you’ll get less time,” said Ira Lee Sorkin, a former SEC enforcement chief in New York who is now in private practice.
Sorkin added, however, that federal sentencing guidelines in effect since Nov. 1--but not applicable to defendants whose pleas were entered earlier, like Boesky--”put a very high premium on cooperation but leave the judge with very little discretion” if a defendant refuses to capitulate and is convicted at trial. Under the new rules, Sorkin said, Boesky might have received at least four years even after cooperating.
Boesky’s sentencing caps a cycle of official punishment that began Nov. 14, 1986, with the SEC’s announcement that he had admitted extensive illegal insider trading and had agreed to fines and penalties totaling $100 million, a lifelong bar from the securities industry, a guilty plea to a sole federal felony charge and complete cooperation with further investigations.
But as Silverman argued during the court session, Boesky remains subject to severe private and civil punishment. This includes many lawsuits filed by corporations, investors, partners and shareholders contending that his actions defrauded them and claiming more than $1 billion in damages. Boesky, Silverman continued, has been vilified by “a blood lust in this community” and has been treated as a “leper” by his former colleagues on Wall Street.
Levine Played Key Role
While regulators had long believed that Boesky’s trading benefited from inside information, they cracked the case only after the 1986 indictment of Dennis B. Levine, then an investment banker, for making $12 million in illicit gains from inside knowledge of pending deals. Levine told probers that Boesky had agreed to pay him for illegal tips.
Shortly after the SEC issued him a subpoena, the trader agreed to admit his own extensive wrongdoing and help gather evidence against others. So far, his evidence has led to criminal charges against Jefferies for “parking,” a maneuver that allows traders to subvert federal disclosure rules for stockholders and brokerages; against Siegel for insider trading, and indirectly to market-manipulation charges against others.
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