Boesky Gives Jury Arbitrage Lesson at Ex-Pal’s Trial
Ivan F. Boesky, ex-prison inmate and notorious inside trader, made his debut Tuesday as a prosecution witness in a trial, calmly and firmly giving evidence against a man who was once such a close friend that Boesky had made him a trustee for his children.
In the securities fraud and insider trading trial of John A. Mulheren Jr., Boesky, 53, briefly stood before a large chalkboard and gave the jury a rudimentary lesson in his old specialty, risk arbitrage--speculation in takeover stocks.
Then, in a loud, firm voice, he admitted many past crimes. Among them was placing $800,000 in briefcases for delivery to former Drexel Burnham Lambert Managing Director Martin A. Siegel. He said the money was a payoff for illegal tips about pending takeover deals. Although Boesky, through his lawyers, has tacitly admitted the violations for some time, it was his first public acknowledgement of the crimes.
Under questioning by the lead prosecutor, Assistant U.S. Atty. E. Scott Gilbert, Boesky began implicating his former friend and business associate in a web of illegal activity that included inside trading as well as “parking” of securities to help Boesky evade taxes. Mulheren, 40, was head of the now-defunct Jamie Securities, which, like Boesky’s firm, speculated in takeover stocks.
Boesky testified, for example, about receiving an illegal inside tip from another admitted inside trader, former investment banker Dennis B. Levine. He said Levine had told him that an expected offer to acquire Boise Cascade had fallen through.
Boesky said he passed the information to Mulheren without disclosing his source. “I told him that I had chilled” on the stock, Boesky said.
Although Mulheren was arrested outside his house with a loaded rifle in 1988 and charged with planning to kill Boesky, there was no sign of additional security in the courtroom when Boesky took the stand. Mulheren is on medication for a chronic manic-depressive condition. Charges related to the rifle incident have been dropped.
The large courtroom in U.S. District Court in Manhattan was filled with spectators, many of them lawyers anxious to see how Boesky would perform on the stand.
Several said in interviews that the real test will come when Boesky faces cross-examination by the defense, probably later this week. Boesky pleaded guilty to a single felony count in 1987, paid $100 million in penalties and served a three-year prison sentence.
Information that he supplied to prosecutors led to many major securities fraud cases, including those that resulted in guilty pleas by Drexel and its former junk bond chief, Michael Milken.
Thomas Puccio, Mulheren’s lawyer, said it was too early to tell how well Boesky’s testimony would hold up. He asserted that little of Boesky’s testimony during his first day on the stand related to the charges against Mulheren. “We’ve gone an entire day and there were maybe only two related questions,” Puccio said.
In court, Boesky appeared as neat and well-dressed as he was during his heyday in the mid-1980s as one of the leading stock speculators on Wall Street. Shortly before he finished his prison sentence several months ago, he was photographed during a furlough with a long, straggly beard and unkempt, long hair. But in court Tuesday, he was clean shaven. His short silver hair was neatly combed.
He was dressed impeccably in a dark suit, white shirt and dark tie. A handkerchief protruded from his breast pocket. He sat with his hands clasped in front of him and, each time he stood, he fastidiously fastened the top button on his suit jacket.
In contrast to Boesky, the defendant, Mulheren, kept to his regimen of informal dress. He appeared in a pink and white striped shirt with open collar, light trousers and scarlet baseball-style jacket that had airplane speed records from the 1940s embroidered on the back.
Mulheren, gregarious and eager to banter with reporters despite his lawyer’s warning not to, said he found Boesky’s testimony “pretty boring.” Asked how he felt hearing his former friend testify against him, he said: “When you hear my testimony, you’ll find out he wasn’t much of a friend.”
Mulheren, however, then declined to say if he will actually take the stand.
The 41-count indictment against Mulheren alleges that the two men did illegal favors for each other in the mid-1980s. Mulheren allegedly manipulated the stock market at Boesky’s request and engaged in sham securities trades that enabled Boesky to evade taxes and violate regulations governing the amount of net capital that securities firms are required to have on hand. In exchange, Mulheren allegedly received inside information from Boesky.
Boesky testified that in 1985 he was planning to restructure his Ivan F. Boesky Corp. and urgently needed to come up with tax losses that he could offset against the company’s profits. He said he arranged a sham trade in which Mulheren’s firm would buy stock of Unocal Corp. from Boesky’s company, hold it for at least 30 days, then sell it back.
He said this would enable the Boesky firm to take a loss for tax purposes but still retain effective ownership of the stock.
Boesky testified that he told his head trader, Michael Davidoff, that he had made an arrangement with Mulheren concerning the Unocal stock under which “if there were gains, we would benefit from them. If there were losses, we would be responsible for them.”
Boesky said, however, that he ultimately told Mulheren to sell the Unocal stock in the open market. Boesky said he promised to reimburse him for any losses.
Boesky also testified that he passed on to Mulheren a tip that Boesky was about to sell a 12% stake in SCM Corp. in 1985, a move that could have had a major effect on a takeover battle then raging over SCM. The secret advance knowledge enabled Mulheren to avoid losses and obtain a favorable price for his own large position in SCM stock.
