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Ivan Boesky, Risk Arbitrager, Penalized $100 Million By SEC

November 15, 1986 GMT

WASHINGTON (AP) _ Ivan F. Boesky, reputed to be the highest-paid person on Wall Street, now faces the highest penalty ever imposed on an individual for insider stock trading.

The Securities and Exchange Commission announced Friday it was requiring Boesky to pay out of his own pocket a record $100 million in cash and assets. The SEC said it was also barring Boesky, famed as one of Wall Street’s shrewdest operators, from ever working again in the securities industry.

In addition, Boesky, 49, agreed to plead guilty to a criminal charge in New York and faces sentencing on that charge at a later date.

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The record fine and criminal charge stemmed from a widening SEC probe of what officials have described as ″the largest insider trading case ever uncovered.″ The case began with charges against Dennis Levine, who was accused last May of amassing $12.6 million in profits during five years of illegal trading on inside information.

Levine, who is cooperating with investigators, gave information implicating Boesky in the illegal activity, SEC Chairman John Shad told reporters at a press conference Friday. Shad said Boesky is cooperating with SEC officials in the continuing investigation.

Both men were accused of insider trading, the use of non-public information on a company to make investments in the stock market.

The SEC charged that Boesky received information from Levine about pending mergers of major corporations, bought stock at low prices before the news was publicly known and then profited when the price of the stock went up.

Boesky became famous as a risk arbitrager, the professionals who risk vast sums trying to profit on stocks involved in takeover situations. He even wrote a book on the subject, ″Merger Mania,″ which he said was intended to ″bring arbitrage out of the closet.″

Boesky’s companies were said to own securities worth more than $2 billion, but Shad emphasized that the $100 million in penalties would be paid out of Boesky’s personal assets and not assets from companies he controls.

The penalty represents $50 million recouped from profits Boesky allegedly made on the insider information and a fine of $50 million.

According to terms of the settlement, Boesky will pay $50 million directly to the U.S. Treasury, with the other $50 million put in an escrow account for later distribution to investors determined by a federal court to have suffered from Boesky’s insider trading.

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Boesky, who has worked on Wall Street for 20 years, amassed a fortune which by some accounts totals more than $200 million. Financial World Magazine estimated in June that Boesky earned more than $100 million last year alone, making him the highest paid person on Wall Street.

″My life will be forever changed, but I hope that something positive will ultimately come out of this situation,″ Boesky said in a statement.

″I know that in the wake of today’s events, many will call for reform,″ he said. ″If my mistakes launch a process of re-examination of the rules and practices of our financial marketplace, then perhaps some good will result.″

In New York, U.S. Attorney Rudolph Giuliani said Boesky had agreed to plead guilty to a criminal charge but officials declined to specify what the charge was.

The ban on Boesky’s further employment in the securities industry will not take effect until April 1988 in order to allow him to wind up his affairs. In addition to heading Ivan F. Boesky Corp., which he started in 1975, Boesky also manages an estimated $800 million put up by investors earlier this year hoping to cash in on Boesky’s speculative dealings.

Boesky was the latest person to be tied to the Levine insider trading case, described by officials as a ring of Wall Street professionals who swapped confidential information.

The SEC complaint alleged Levine disclosed to Boesky non-public information concerning a possible merger of Nabisco Brands Inc. and R.J. Reynolds, along with alleged insider information about Houston Natural Gas Corp., American Natural Resources Co., General Foods Corp., Union Carbide Corp., and Boise Cascade Corp.

The SEC complaint said that Boesky last April agreed to pay Levine approximately $2.4 million for supplying him with these tips but this payment was never made before SEC charges were brought against Levine, officials said.

A week ago, a former investment banker for the investment firm Shearson Lehman Brothers became the first person to be sentenced in the Levine case. Ira B. Sokolow, 32, of Great Neck, N.Y., was sentenced to a year and a day in prison for his part in the scheme. Sokolow admitted passing confidential information on corporate acquisition plans to Levine.

The SEC said Levine’s position in the mergers and acquisitions department at Drexel Burnham Lambert Inc. gave him advance notice of some of the biggest takeover deals of 1985.

Just one deal - the buyout by R.J. Reynolds of Nabisco Brands in May 1985 - netted Levine nearly $2.7 million in secret profits, the SEC said.

Boesky moved to Wall Street in 1966 to work as a securities analyst after holding various legal and accounting jobs, going into business for himself in 1972 with $700,000 of family money.

His own firm grew along with the merger waves that struck corporate America in the late 1970s and early 1980s. He made multimillion-dollar profits by buying Getty Oil stock before it was acquired by Texaco, and by purchasing Gulf Oil stock before it was swallowed by Standard Oil of California, now called Chevron.