Jefferies Trader Testifies to Carbide Stock Tampering

Times Staff Writer

The head trader at Jefferies & Co., the Los Angeles-based stock brokerage, testified Monday in the GAF Corp. stock manipulation trial that he carried out orders to artificially raise the closing price of Union Carbide stock in 1986 and reported his activities by phone to GAF’s vice chairman.

The testimony of James T. Melton, 45, director of trading at Jefferies, has been considered crucial to the outcome of the trial by lawyers in the case. Melton suffered a heart attack late last month, and for a time it was uncertain if he would be able to testify.

Melton said that in October, 1986, on the instructions of Boyd L. Jefferies, the founder and then chief executive of Jefferies & Co., he purchased enough shares of Carbide stock on several consecutive days to ensure that it closed at or above $22 per share. He said that, on Jefferies’ instructions, he telephoned James T. Sherwin, GAF’s vice chairman, after the close of daily trading and told Sherwin how many shares he had bought and what the closing price for that day was.

Melton said Boyd Jefferies had given him the “mission” of boosting the price Carbide stock. “My instructions were to buy Union Carbide and make sure that it closed at a particular price,” he said.


Sherwin individually and GAF as a corporation are the defendants in the federal criminal trial here. They are accused of asking Jefferies & Co. to illegally boost the market price of Union Carbide stock so that GAF would get a better price for a large block of Carbide shares that it owned. GAF planned to sell the shares following an unsuccessful attempt to take over Carbide.

Although the first part of Melton’s testimony Monday was damaging to Sherwin, Arthur Liman, one of GAF’s lawyers, may have scored a major victory for the defense during cross-examination. In response to questions from Liman, Melton directly contradicted earlier key testimony by Boyd Jefferies.

Boyd Jefferies, who pleaded guilty to two felony counts in 1987 and agreed to cooperate with the government, is the prosecution’s star witness in the trial. The main issue in the case is whether, as the government claims, Sherwin had given instructions to Jefferies & Co. to buy the Carbide stock, and whether he had promised to reimburse Jefferies for any losses that it might incur in the transactions.

Doesn’t Recall Conversation


In his testimony, Jefferies had said that he had received instructions only once from Sherwin to bid up the price of Carbide stock. After that, he said, on successive days at the end of October and early November, 1986, Sherwin had instructed Melton to buy additional shares. But Melton said Monday that he didn’t recall ever receiving any instructions from Sherwin.

“I don’t recall Mr. Sherwin ever telling me to do anything with Union Carbide,” Melton testified. Liman then read aloud part of Boyd Jefferies’ testimony, in which Jefferies stated that Melton had told him about additional instructions from Sherwin. After listening to the testimony, Melton said: “I don’t recall any conversation of that type at all.”

Melton said that in his telephone conversations with Sherwin, the GAF vice chairman was extremely terse. Melton said the conversations were limited to Sherwin answering the phone by saying “Jim Sherwin” and then saying “thank you” after Melton reported how many Carbide shares he had bought and the stock’s closing price for the day.

Although apparently pleased overall with Melton’s testimony, Liman and the other defense lawyers on Monday declined to discuss its potential impact on the case. Melton had been expected to be the main corroborating witness for Jefferies’ claim that there was an illegal deal with Sherwin and GAF. But Melton said Monday that his only knowledge of the deal came from Jefferies, not anyone at GAF.

The defense lawyers, however, so far haven’t offered any explanation for Sherwin’s telephone conversations with Melton.

As head trader, Melton sat directly next to Boyd Jefferies at the big table that is the hub of Jefferies & Co.'s trading floor. On the witness stand, Melton appeared to have difficulty remembering independently what had taken place in 1986. He said in court that most of his testimony was based on assumptions drawn from his recent review of trading records from that time.

Won’t Disclose Plans

Prosecutors are expected to finish the government’s case today. As is common at this stage in criminal trials, defense lawyers are then expected to ask the judge to dismiss the case because of lack of evidence. Judges, however, rarely grant such requests.


Stephen E. Kaufman, the lawyer representing Sherwin, declined to say whether he plans to call Sherwin to testify during the defense’s case but said “it’s a possibility.” The defense lawyers also refused to say if they plan to call Samuel J. Heyman, GAF’s chairman and chief executive, as a witness.

This is the second trial of GAF and Sherwin on the charges. The first ended in a mistrial after Judge Lowe ruled that prosecutors had improperly withheld a piece of evidence from the defense. The first trial was cut short before Melton was called as a witness.