Boesky Associate Indicted on 42 Stock Fraud Charges

Former stock speculator John A. Mulheren, arrested last year for allegedly threatening the life of fallen arbitrager Ivan F. Boesky, was indicted Wednesday on 42 federal counts of securities fraud, conspiracy and other charges stemming from his business dealings with Boesky.

A federal grand jury in Manhattan charged the flamboyant Mulheren, 39, of manipulating the stock of Gulf & Western Inc.--recently renamed Paramount Communications--so that Boesky would profit by selling a huge block of its stock to the company. The indictment also accused Mulheren of carrying on a series of sham stock transactions with Boesky to enable Boesky to evade taxes and avoid government rules requiring investors to maintain minimal levels of capital.

In return for these favors, Mulheren received secret inside stock information from Boesky, the indictment said, which he presumably used to make money himself.

Arrested Carrying Assault Rifle

Also indicted was Leonard DeStefano, a trader who worked for Mulheren at his now-defunct Wall Street firm, Jamie Securities. DeStefano was charged with conspiracy, securities fraud and maintaining false records.

Wall Street was jolted in February, 1988, to hear that the ace arbitrager had been arrested with an Israeli assault rifle after threatening the life of Boesky and Boesky’s chief trader, Michael Davidoff. Mulheren, once a close friend of Boesky, had feared that Boesky’s cooperation with prosecutors in the unfolding insider trading scandal would lead them to him, authorities said at the time.

Two Felony Charges to Come

Mulheren, who has been undergoing psychiatric treatment since the arrest, is expected soon to face state criminal charges in addition to those brought Wednesday.

State prosecutors in New Jersey are expected to charge him with two felony counts: illegal possession of a firearm, and possession of a firearm with intent to cause harm, according to Benito Romano, the acting U.S. attorney in Manhattan. He said federal prosecutors plan to dismiss pending charges of threatening a federal witness, as soon as New Jersey authorities bring their charges.

Each of the 42 federal counts is punishable by five years in prison and a $250,000 fine.

Mulheren’s attorney, Thomas Puccio, said his client would plead not guilty. The charges, he said, “have been around for two years and, like Ivan Boesky’s credibility, they don’t get better with age.”

Defendant DeStefano could not be reached for comment.

According to the indictment, Mulheren set out to manipulate Gulf & Western’s stock on Oct. 17, 1985, after the company agreed that it would repurchase Boesky’s huge 3.47-million-share block if the price reached $45 a share. Mulheren put in three large orders for the stock and succeeded in raising the price to $45 from $44.75.

This manipulation “defrauded the investors in Jamie Securities, the management of Gulf & Western and the investing public,” Romano said.

As Boesky sold his block to Gulf & Western, a second, unidentified investor sold a second block of 3.23 million shares to the company. Prosecutors declined to explain why this investor’s identity was concealed.

They also would not comment on Gulf & Western’s motives in buying back the block, which they valued at $156 million.

Paramount Cooperated

The company may have agreed to buy Boesky’s shares to get rid of a potentially threatening shareholder; Gulf & Western earlier bought a large block of stock held by corporate raider Carl Lindner, at the market price.

On the day of its purchase from Boesky, the company explained the heavy volume by announcing that the transaction was part of a share buyback program.

In a brief statement Wednesday, Paramount would only say that it had cooperated fully with prosecutors. “As the indictment states, the alleged manipulation of our stock was concealed from us,” the company said.

The indictment said Mulheren and Boesky’s company, Seemala Corp., on a series of occasions planned transactions that would make it appear that Jamie Securities had bought shares from Boesky. But Seemala maintained the right to repurchase the shares and to take any profits that would accrue during the period.

Seemala agreed to make up any losses that Jamie incurred if the shares declined in price while Mulheren held them. Jamie Securities repaid Boesky his profits with inflated bills for brokerage services it had purportedly received from Seemala; also, it sold Boesky 500,000 shares of Beatrice securities at an inflated price, the indictment alleged.

Mulheren Must Take Lithium

The indictment didn’t say how much Boesky earned from the transactions, and it gave no hint of the value of Boesky’s tips to Mulheren.

Mulheren is currently free on a $20-million personal recognizance bond secured by his two homes, which are located in Rumson, N.J., and near Roanoke, Va. Under a complicated bail arrangement, Mulheren must have his blood checked weekly to assure that he is continuing to take lithium, a drug prescribed for psychiatric patients, prosecutors said.

He must consult regularly with his psychiatrist, cannot contact any witnesses in the case and is sharply limited in his movements.