Ex-Boesky Associate S. B. Lewis and His Arbitrage Firm Indicted
The wave of indictments of well-known Wall Street figures continued Thursday with the filing of federal conspiracy and market manipulation charges against Salim B. Lewis, a leading speculator in takeover stocks, and his arbitrage firm, S. B. Lewis & Co.
Lewis, 49, a former associate of Ivan F. Boesky, and his firm were accused of acting to artificially raise the market price of Fireman’s Fund Corp. stock one day before American Express sold Fireman’s Fund stock and warrants to the public on May 9, 1986.
According to a 22-count indictment returned Thursday by a federal grand jury in Manhattan, a main purpose of the alleged conspiracy was “to ensure that American Express maximized the proceeds it received” from the sale of the Fireman’s Fund stock.
Lewis, known as “Sandy,” is a personal friend of James D. Robinson III, American Express’ chairman. An American Express spokesman confirmed that the company backed Lewis when he set up S. B. Lewis & Co. in 1980 and said Lewis was instrumental in arranging American Express’ 1981 acquisition of the Wall Street brokerage firm Shearson Loeb Rhoads. American Express still owns a stake of about 20% in Lewis’ firm.
The American Express spokesman said that neither Robinson nor anyone else at the financial services company was involved in any wrongdoing and added that American Express had “cooperated fully” in the federal investigation.
Stanley S. Arkin, a lawyer representing Lewis, denied that his client had taken any steps to manipulate Fireman’s Fund stock and predicted that his client would be acquitted.
The indictment of Lewis was announced by U.S. Atty. Rudolph W. Giuliani. It came one day after Giuliani, in an unrelated investigation, obtained an indictment of two other Wall Street firms involved in arbitrage, Marcus Schloss & Co. and Victor Teicher & Co., and three individuals on conspiracy and securities fraud charges.
At a press conference, Giuliani confirmed that the Lewis indictment was obtained with the help of Boyd L. Jefferies, the former chairman of the Los Angeles-based securities firm Jefferies & Co. Jefferies pleaded guilty to securities law violations in 1987 and has since cooperated with prosecutors in a number of cases.
In addition to American Express, S. B. Lewis & Co. has several other prominent investors. Its limited partners include Harold M. Williams, a former chairman of the Securities and Exchange Commission, and Roderick M. Hills, another former SEC chairman, and Hills’ wife, Carla, a former secretary of housing and urban development.
Lewis served for five months in 1977 as a special consultant to the SEC on national market systems when Williams was SEC chairman. Williams--who is now president and chief executive of the trust that runs the J. Paul Getty Museum in Malibu and also serves as a director of Times Mirror Co., publisher of The Times--said in an interview Thursday that “I have full confidence in Sandy’s ethics and morality.” He added that “I would have great doubts that he knowingly violated the law.”
The Hills couldn’t be reached immediately for comment. Williams and the Hills weren’t named in the indictment and aren’t accused of any wrongdoing.
The alleged market manipulation conspiracy occurred in 1986, when American Express was continuing to sell off stakes in Fireman’s Fund to the public. The insurance concern had been a wholly owned subsidiary of American Express.
American Express, which today still owns 19% of Fireman’s Fund, was planning to sell 9 million units of Fireman’s Fund combined stock and warrants to the public in May, 1986. The indictment states that in late April and early May of that year, the market price of Fireman’s Fund stock was dropping, which would have reduced the price American Express would have received from the sale of the units.
The indictment charges that Lewis arranged with Jefferies & Co. to buy 410,000 shares of Fireman’s Fund stock on May 8, thereby boosting the closing price of the stock to $38 per share on the New York and Pacific stock exchanges.
According to the indictment, the trading arranged by Lewis accounted for 60% of that day’s trading volume in Fireman’s Fund stock on the New York Stock Exchange and 80% on the Pacific Stock Exchange.
One day later, American Express announced that it would sell 8 million shares of Fireman’s Fund at $41.50 a share. It eventually realized a gain of $88 million from that sale.
The indictment doesn’t name any American Express employees, and it doesn’t charge that Lewis had any contact with American Express about the stock purchase before he allegedly arranged it. But the indictment does note that American Express “was a limited partner and had a substantial investment” in Lewis’ company. At a press conference Thursday, Giuliani declined to elaborate on what role, if any, American Express might have played in the alleged wrongdoing.
Phony Invoice Alleged
The grand jury charged that Lewis promised two unnamed Jefferies employees that Jefferies & Co. would be compensated if it lost money on the transaction.
The indictment also accused Lewis of arranging for phony invoices to be issued when S. B. Lewis & Co. reimbursed Jefferies $150,000 for its loss. One invoice allegedly stated falsely that the payment was for “investment banking services.”
Later, apparently concerned that this wouldn’t adequately disguise the transaction, Lewis allegedly had that invoice canceled and arranged for the payment to be funneled through another securities company, R. D. Smith & Co. The indictment charges that another phony invoice was drawn up showing that R. D. Smith & Co. made the payment to Jefferies & Co. for “research.”
In an interview Thursday, defense attorney Arkin accused Giuliani of “extreme overreaching” and asserted that, even if the charges are true, they aren’t criminal matters but civil violations better left to the SEC.
Possible 110-Year Term
In a statement, Arkin said Lewis had neither been offered nor received any benefit for buying Fireman’s Fund stock. Arkin also sharply criticized Giuliani for including 22 counts in the indictment. Arkin asserted that, even if true, under normal legal standards the accusations concern only a single act. “This, in my view, is a cynical, malicious redundancy,” he said, asserting that it amounted to “prosecutorial misconduct.”
The 22 counts include charges of conspiracy, stock manipulation, mail fraud, wire fraud, maintaining false books and records, and violation of federal regulations governing purchases of stock on credit. If convicted on all counts, Lewis theoretically could face a sentence of 110 years in prison and a penalty of $49.5 million. S. B. Lewis & Co. faces a maximum penalty of $5.5 million.
