CBS Inc. filed suit in federal court here today against Wall Street arbitrageur Ivan F. Boesky, alleging violations of federal securities laws, including illegally financing his purchase of 8.7 percent of the company for about $250 million.
On April 1, Boesky, Wall Street's best known speculator in stocks of companies that are believed to be takeover targets, disclosed in a Securities and Exchange Commission filing that he had purchased 8.7 percent of CBS. The company has been the target of persistent takeover rumors since early January when a conservative group backed by Sen. Jesse Helms (R-N.C.) said it wanted to acquire control of CBS to end what it believes is a "liberal bias" in its network news coverage.
Boesky had no comment on the suit, which also named a group of companies he controls.
CBS claims in its lawsuit that Boesky failed to disclose that he purchased CBS shares through alleged illegal margin transactions, borrowing 100 percent of the money to make the investment even though Federal Reserve System regulations limit such borrowing to 50 percent of the purchase price. As a result, CBS said, Boesky has "artificially and temporarily inflated CBS stock prices while creating a risk of a sharp stock selloff and a downward price spiral."
CBS also said in the suit that Boesky has claimed to be "supportive" of CBS management while not disclosing discussions to sell his shares to "hostile investors," including Cable News Network founder Ted Turner.
"Boesky has had conversations with Ted Turner, who has repeatedly expressed interest in acquiring CBS, and with other unidentified third parties concerning the sale, disposition or other use to be made of defendants' block of CBS shares," the lawsuit said. "Boesky's purpose in having those conversations were to strengthen Boesky's position in attempting to coerce CBS into acquiring, or causing another to acquire, defendants' shares at a price higher than could be obtained by sale of the shares in the market."
CBS officials have said they refused to purchase Boesky's stock when it was offered to them at the market price. The company's chairman, Thomas H. Wyman, repeatedly has said he will vigorously oppose any takeover bid.
CBS said in the lawsuit that former Federal Communications Commissioner Charles Ferris, an attorney representing Turner, made a presentation to each of five FCC commissioners in February, at which time Ferris made inquiries about FCC regulations affecting an unfriendly takeover bid by Turner for a major broadcasting organization. CBS said in the suit that published reports indicated that Ferris advised the FCC commissioners that Turner intended to try to take over CBS.
The suit said that Boesky purchased CBS stock on Feb. 27 and 28, before reports of inquiries by Turner at the FCC had been made public. Turner declined to comment today on his intentions regarding CBS.
CBS stock has risen dramatically since January, when it was trading at 72 1/2 after the Helms group announced its desire to gain control of the company. CBS stock closed today at 107 5/8, down 2 7/8.
"Defendants' illegal financing schemes and arrangements have enabled them to speculate in CBS stock beyond their readily available financial means, making them extremely vulnerable to decreases in the price of CBS stock," the CBS suit said. "Because of their leveraged position, decreases in the price of CBS stock will cause the broker-dealers, who have advanced cash to defendants to purchase shares at higher market prices, to demand additional security for their loans. If defendants are forced to sell CBS stock to provide that security, such sales will exert additional downward pressure on the price of CBS stock. . . ."
CBS asked in the suit that Boesky be required to disclose how he financed his purchase of CBS shares; that he not be allowed to purchase additional shares until such disclosure is made; that he be required to sell all CBS stock he acquired as part of his "unlawful scheme to inflate artificially the price of CBS stock," and that he not have any voting rights as a shareholder until a ruling is made on the charges.