A federal judge on Thursday imposed a fine and probation but no prison time on Boyd L. Jefferies, the founder and former chairman of the Los Angeles-based brokerage firm Jefferies & Co.
U.S. District Judge Morris E. Lasker cited Jefferies’ “exemplary” cooperation with federal prosecutors in a string of securities fraud investigations before sentencing Jefferies on the two securities fraud counts he had pleaded guilty to in 1987. Jefferies was fined $250,000 and must spend five years on probation. But the judge said Jefferies, 58, could apply after three years to end the probation.
Jefferies resigned from his firm, pleaded guilty and agreed to cooperate with the government after he was implicated in a variety of securities fraud schemes by former stock speculator Ivan F. Boesky. Since then, Jefferies has been the star government witness in three criminal trials, and he is due to testify in two more in the fall.
Jefferies drew far more lenient punishment than Boesky, who was sentenced by the same judge in December, 1987. Boesky paid a $100-million penalty and is serving a three-year prison term. Boesky, who pleaded guilty to a single charge after being accused of widespread insider trading, also has cooperated with prosecutors. But in deciding against a prison sentence for Jefferies, the judge noted that Jefferies wasn’t accused of insider trading and didn’t profit directly from his illegal actions.
The judge said he took into account that one of the two charges against Jefferies--that he had illegally “parked” securities in sham transactions to hide their true ownership--was a violation that never before had been prosecuted criminally.
Judge Lasker said he was also strongly influenced by several of the hundreds of letters that he had received attesting to Jefferies’ good character. “There are among them letters that have really hit my heart and made me feel that there is no question that you are essentially a good man,” the judge said.
Before the judge imposed the sentence, Jefferies’ voice broke and he fought back tears as he told Judge Lasker that he recognized “the seriousness of my actions.” Jefferies said: “I would like to take this opportunity to apologize to the court, to apologize to the government, to apologize to my friends and family who have given me so much support.”
When the sentencing ended, Jefferies, visibly relieved, told reporters that “I was expecting much worse.” In response to a question, Jefferies said he hopes eventually to return to Jefferies & Co. Under a separate agreement with the Securities and Exchange Commission, he currently is banned for life from the securities industry. But the agreement allows him to apply for the ban to be lifted five years after his guilty plea, which would be in March, 1992.
‘Didn’t Know’ Law Violated
According to Jefferies’ own testimony as a government witness in several recent trials, at times in the mid-1980s his firm, in seeking to keep good customers or attract new ones, agreed to perform favors that involved violating securities laws. Such favors included hiding the ownership of stock and illegally manipulating the market price of shares, deliberately driving them up or down.
Jefferies has said that, while he knew that the actions were wrong, he didn’t know at the time that they violated criminal law. Under the agreement that Jefferies’ lawyers negotiated with the government, the firm itself won’t be charged with any violations.
After handing out the sentence, the judge addressed the spectators in the courtroom, many of whom he characterized as “members of the financial community.” Lasker told them that Jefferies had earned a lenient sentence “through agony and effort” but that it shouldn’t be regarded as a sign that the court takes violations of securities laws lightly.
He said people in the securities industry, like members of the legal profession, “are among the most fortunate people in the world.” He said: “It is absurd and obscene for any person so engaged to undertake acts that will simply bring him possibly greater riches. . . . This country is beginning to awake, I hope . . . to the morally corrupting effect of thinking of oneself only.”
Major Block Trader
In an unusual move, Benito Romano, the acting U.S. attorney in Manhattan, appeared in court to praise Jefferies’ cooperation. After the sentencing, Jefferies’ relatives, friends and former colleagues who filled the courtroom’s spectators section burst into applause. Some former colleagues had arrived early Thursday morning on a “red eye” flight from Los Angeles to show support for Jefferies at the hearing.
Jefferies had founded Jefferies & Co. in the early 1960s. By the beginning of the 1980s it had become one of the nation’s leading firms for trading large blocks of stock. It also specialized in making a market for stocks during the hours when the regular exchanges were closed. The firm was often used by corporate raiders in their efforts to amass shares in takeover attempts. Jefferies was noted for sleeping little and putting in workdays that lasted from 2:30 a.m. until 6 p.m.
But the government’s prosecution of Boesky, which shocked the financial world in 1986, swiftly unraveled Jefferies’ career. Boesky was said to have made about $50 million in profits from illegal insider trading. In his efforts to obtain lenient treatment, Boesky implicated Jefferies in schemes to “park” securities for Boesky’s Seemala Co., a securities firm, to help Boesky evade regulators’ rules on securities firms’ net capital requirements.
Of the two charges to which Jefferies pleaded guilty, one involved parking 2 million shares of stock in three companies for Boesky. The other related to a scheme to illegally manipulate the price of stock in Fireman’s Fund. That charge specifically dealt with violation of federal “margin” requirements, rules that require securities brokers to have their customers put up at least 50% of the purchase price of any stock they order.
Testified at Trials
After the guilty plea, Jefferies gave prosecutors information on GAF Corp., former Singer Co. Chairman Paul A. Bilzerian and noted Wall Street stock trader and merger specialist Salim B. Lewis. Jefferies testified in two trials in which GAF and its vice chairman were accused of conspiring with Jefferies & Co. to manipulate stock prices. Both trials ended in mistrials. But Jefferies’ testimony helped win the conviction last month of Bilzerian on nine counts of securities and tax fraud. Bilzerian has said he plans to appeal.
Much of the Bilzerian case centered on allegations of stock parking.
Jefferies is due to testify in another GAF retrial and in the Lewis case in the fall. Lewis is accused of hiring Jefferies to manipulate the price of the Fireman’s Fund stock. Lewis strongly denies the charges and has pleaded not guilty.
The judge said he didn’t sentence Jefferies to any community service because Jefferies is already engaged in a variety of charitable and volunteer activities, including sports programs for children and a scholarship program.
THE JEFFERIES CHRONOLOGY 1986
Nov. 14: Stock speculator Ivan F. Boesky agrees to pay $100 million to settle charges of trading on insider information. He also agrees to cooperate with investigators and to plead guilty to a single, unspecified criminal charge.
March 19: Boyd L. Jefferies, founder of the Los Angeles securities firm Jefferies & Co., agrees to plead guilty to two criminal charges involving securities law violations, including one deal involving Boesky. He is not accused of insider trading. Jefferies, who was implicated by Boesky, resigns as chairman of Jefferies & Co. and agrees to stay out of the securities business for at least five years.
Dec. 18: Boesky is sentenced to a three-year prison term but not fined.
July 6: Using information supplied by Jefferies, a federal grand jury in Manhattan indicts GAF Corp., company Vice Chairman James Sherwin and two subsidiaries on charges that they manipulated the price of Union Carbide stock in 1986 after a failed attempt to acquire the company.
Nov. 3: A grand jury indicts Salim B. (Sandy) Lewis, a well-known takeover speculator, on charges that he manipulated the stock price of Fireman’s Fund Corp. in 1986 to help American Express Co. sell part of its Fireman’s Fund stake for more money. The indictment is based partly on disclosures by Boyd Jefferies more than a year earlier.
Dec. 22: Corporate raider and Singer Co. Chairman Paul A. Bilzerian is indicted by a grand jury on 12 felony counts linked to four unsuccessful takeover deals in 1985 and 1986. Charges include securities and tax fraud, conspiracy and making false disclosure statements. Jefferies supplied some of the material used in the indictment.
Jan. 3: Jefferies makes his courtroom debut, testifying that GAF and Sherwin asked him to manipulate the price of Union Carbide stock in the fall of 1986.
Jan. 10: U.S. District Judge Mary Johnson Lowe declares a mistrial in the GAF case, ruling that prosecutors withheld, albeit unintentionally, a key document.
Feb. 6: Jefferies takes the stand in the GAF retrial, repeating his allegations against GAF.
Feb. 8: Defense lawyers attack Jefferies’ credibility, labeling him a “crook” who had done a “dirty deal” with Boesky.
Feb. 27: Jefferies & Co. head trader James Melton contradicts testimony by his former boss. Melton said he didn’t recall a request by Sherwin to manipulate Carbide stock, as Jefferies had testified.
March 22: After 12 days of deliberations, the GAF jury reports that it is hopelessly deadlocked and Judge Lowe declares a second mistrial. Jurors later say they didn’t believe Jefferies’ testimony.
May 10: Jefferies testifies that he purchased and held blocks of stock for Bilzerian in four companies in 1985 and 1986. A Jefferies & Co. executive later corroborates his testimony.
June 9: Bilzerian is convicted.
June 29: Jefferies, his lawyer and government prosecutors meet with U.S. District Judge Morris Lasker to discuss his sentencing. Prosecutors praise his cooperation and Jefferies’ lawyer requests probation and no jail term. Lasker indicates that some prison time is likely.
July 6: Jefferies is sentenced to five years probation and fined $250,000 after pleading guilty.