3-Year Sentence Given to Ex-Stock Speculator

Salim B. (Sandy) Lewis, the former Wall Street takeover speculator and deal maker, was sentenced Monday to three years on probation and fined $250,000 for his admitted role in manipulating the price of Fireman’s Fund Corp. stock in May, 1986.

U.S. District Judge Mary Johnson Lowe also sentenced Lewis, 50, to perform several thousand hours of community service at Daytop Village, a New York organization that offers long-term residential treatment to drug addicts. Lewis’ company, S. B. Lewis & Co., which is being liquidated, was fined $400,000.

Lewis pleaded guilty Aug. 30 to three felony counts, and his company to two, in settlement of a 22-count indictment that had been brought in 1988. All of the charges stemmed from the stock manipulation incident in which Lewis arranged to bid up the price of Fireman’s Fund shares. The government claimed that Lewis had been motivated by a desire to help American Express Corp., which planned one day later to make a public offering of a large block of Fireman’s Fund stock.

Judge Lowe said Monday that she regarded Lewis’ crimes as serious violations that undermined the public’s confidence in the nation’s stock markets. But in deciding not to impose a prison sentence, she said the stock manipulation appears to have been “an isolated incident.” She noted that Lewis didn’t receive any financial benefit from his crime and said she also looked favorably on his decision to plead guilty.

Lewis, who lately has grown a beard, told the judge in a firm voice that “what I did was wrong, and I accept responsibility for my actions.” But he said: “I never had any intention of hurting anyone or gaining any advantage for myself.”

Lewis said his actions were the result of an angry “impulse” to retaliate against short sellers who he claims were attempting to drive down the price of Fireman’s Fund stock. The result of his action, he said, was “the complete loss of a business which took me a decade to build.”

Lewis and his family appeared greatly relieved after the sentence, but he declined comment to the press. His lawyer, Stanley Arkin, said he was “delighted” that the judge didn’t impose any prison time. Federal prosecutors had asked that Lewis be sent to prison, although they didn’t ask for a specific term.

The judge said she decided not to order Lewis or his company to make restitution because there was no way to assess accurately how much, if anything, his actions cost the investing public or individual investors. Lewis and his lawyers have claimed that his actions had no adverse effect on ordinary investors.

Lewis, one of Wall Street’s leading speculators in takeover stocks, decided as a result of his guilty plea to close down his highly profitable company. All of its 44 employees have been or will soon be laid off. Lewis was once a business associate of former stock speculator Ivan F. Boesky, who was sentenced to prison after pleading guilty to one felony securities fraud charge. Lewis also served in the late 1970s as a special adviser to the Securities and Exchange Commission.

Lewis’ company, formed in 1980, used capital provided by Lewis, American Express and several other prominent investors to profit from the stock price fluctuations of companies that were being acquired or undergoing leveraged buyouts.

Earlier this month, the firm formally agreed with the SEC to give up its securities broker-dealer license and set aside $1.15 million to settle SEC administrative charges. Lewis is understood to be negotiating with the SEC on civil charges that the agency may bring against him personally.

In addition to speculating in stocks, Lewis also advised prominent corporate chieftains on mergers, several of which he helped to arrange in exchange for large fees. Among those he advised was a close business associate, James D. Robinson III, chairman of American Express. Lewis was instrumental in arranging American Express’s takeover of the brokerage firm Shearson Loeb Rhoads in 1981, and American Express owned about 20% of Lewis’ firm. According to government documents, American Express’ investment in Lewis’ company totaled $30 million in 1986.

According to the indictment, Lewis arranged with the Los Angeles-based brokerage firm Jefferies & Co. to manipulate upward the price of Fireman’s Fund stock on May 8, 1988, by buying 410,000 shares one day before American Express offered an 8-million-share block of the insurance concern’s stock to the public. The offering resulted from American Express’ decision to lower its stake in Fireman’s Fund, which was then 41%. The manipulation allegedly saved American Express from substantial losses on the offering.

The indictment didn’t accuse American Express or Robinson of any wrongdoing. Instead, the government charged that Lewis on his own decided to help out a longtime backer and associate.

In documents filed with the court, Lewis’ lawyers claimed that he manipulated the stock in an effort to thwart short sellers who had tried to profit from the stock offering by driving down the price of the stock before the offering was made. The intent of the short sellers was to sell borrowed shares of higher-priced stock before the offering, then profit from the price difference after paying back the stock with lower-priced shares available in the offering. The practice of using short selling in that way to make a profit on a stock offering has since been made illegal.

During the sentencing hearing, Arkin argued that Lewis had acted as a “Lone Ranger,” or like the Clint Eastwood character Dirty Harry, in trying to retaliate against the unfair actions of the short sellers. But the judge called Lewis a “vigilante” and said she wasn’t convinced that his motivation was purely selfless.

Lewis is the son of Salim L. (Cy) Lewis, a Wall Street legend who had transformed Bear, Stearns & Co. into an aggressive Wall Street trading house. In arguing for a lenient sentence, Arkin noted that Sandy Lewis achieved success after overcoming severe emotional disturbances which, during childhood, had necessitated that he be admitted to a special residential school for disturbed children for more than five years. Government documents said that in 1986 Lewis earned more than $16 million from his company.