Boesky Day, Bjt,0849WASHINGTON (AP) - Wall Street trembled 10 years ago today.
Ivan F. Boesky, the speculator in corporate takeovers, agreed on Nov. 14, 1986, to pay $100 million and cooperate with the Securities and Exchange Commission in a broad investigation of the crime known as insider trading.
The Boesky agreement allowed the SEC to fire off subpoenas - from Manhattan to Beverly Hills, Calif. - which served as the beginning of the end for Michael Milken and his firm, Drexel Burnham Lambert Inc., then one of the most powerful investment banks in the country.
Boesky's cooperation also led to major cases against Steven and Victor Posner, Martin Siegel, Kidder Peabody and other financiers.
``While the cases concern a whole variety of people, Boesky is really the centerpiece,'' said Bruce Baird, the former head of the U.S. Attorney's Office securities and commodities fraud unit in New York.
``Boesky provided us with a unique window ... Those cases are hard to create without a Boesky,'' Baird said.
Boesky, now 59, made a $200 million fortune by profiting off stock price volatility as corporate mergers came together and fell apart.
He shared his secrets in a book, ``Merger Mania,'' and was feared in the investment community for his clout and the money he could marshal for a deal.
But what Boesky really did was cheat by using illegally obtained secrets about impending mergers to buy and sell stock before the mergers became public knowledge.
Ten years later, Boesky's whereabouts are unclear, but he remains a fixture of popular culture. James B. Stewart, who documented the insider trading scandals in his book, ``Den of Thieves,'' said Boesky's guilty plea ``made him, overnight, a national symbol of greed.''
Boesky has been the subject of numerous books, articles, and his activities with Milken and Drexel are the subject of a new rock musical in Brooklyn, ``The Predator's Ball,''
``It was the dramatic development that moved insider trading laws from a corporate speciality, in many ways, to the highest profile kind of crime,'' said Harvey Goldschmid, securities professor at Columbia University in New York.
John Sturc, a former senior SEC enforcement attorney who negotiated the Boesky settlement, agreed.
``It was absolutely clear to me ... from the moment that Boesky was interested in talking about resolution of the case with the government, that this will be a real sea change,'' Sturc said.
It showed that white collar criminals would face sharp punishment. Boesky pleaded guilty to one criminal count, agreed to pay a $50 million fine and relinquished $50 million in illegal trading profits. In 1987, he was sentenced to three years in prison. He served 22 months in the federal prison at Lompoc, Calif., and four months at a Brooklyn halfway house.
From that point forward, ``people got a lot more serious'' at Wall Street firms about policing for fraud in their own shops, Sturc said.
Congress toughened federal securities laws as a result of the insider trading scandals, giving the SEC the power to levy civil fines and to force people found guilty of insider trading to pay fines three times the amount of their profits.
The SEC brought more than 40 enforcement actions from its investigation of Boesky, Milken and related figures, said Thomas Newkirk, the SEC's associate enforcement director who worked on the Boesky and Milken cases.
Barry Goldsmith, an ex-SEC lawyer who handled the civil cases against Boesky and Milken, said ``the quality of Mr. Boesky's cooperation was good.''
``In the Posner case and the Drexel case, the facts as he reported them, by and large, proved to be quite accurate,'' Goldsmith said.
The biggest downfall that resulted from Boesky's cooperation was Milken, the former Drexel junk bond trader who pleaded guilty to six felony securities violations, paid more than $1 billion in fines and restitution and served two years in prison.
But in contrast to Boesky's obscurity, Milken has been in the public eye. He has aroused new scrutiny by the SEC for his advisory roles in recent mergers, which may constitute a violation of his plea deal. Milken has denied any wrongdoing.
Boesky's last major public appearance was three years ago in Manhattan federal court, where he was on the witness stand testifying for the SEC against the Posners, two powerful Florida corporate takeover artists.
Tanned and fit from a regimen of weight lifting at his mountaintop home in La Jolla, Calif., Boesky calmly described his illegal trading with Milken and the Posners in considerable detail.
Prior to that, Boesky went through a messy divorce, where he surrendered his Westchester County, N.Y., mansion and Park Avenue penthouse to ex-wife, Seema. Boesky received $20 million in the settlement, and has kept a low profile since.
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