It was a scene to chill the heart of even the most stalwart chief executive: three Belzbergs relaxing in a sauna on a Sunday morning, talking about whether to launch a hostile takeover bid for a major oil company.

They had gathered in William Belzberg's Los Angeles mansion that Sunday, March 16, 1986 -- first in the bedroom sitting area, later in the sauna -- to consider "Project Slugger," a proposed takeover bid for Kentucky-based Ashland Oil Co., one of the nation's leading independent oil marketers and refiners.

Fifty-four-year-old William Belzberg was there, as was his brother Samuel, 59, chairman of First City Financial Corp., a diversified holding company that the wealthy Canadian family uses for its sprawling investments and well-publicized corporate takeover raids. Also present was Samuel's son Marc, 32, who directs the Belzbergs' stock trading in New York.

For more than an hour, the Belzbergs discussed Ashland's assets and share price, debating whether to go forward with stock purchases that ultimately would force the family to disclose its takeover intentions publicly.

"It was concluded that we should," Marc Belzberg later recalled.

Within 24 hours, the Belzberg family's bid for control of Ashland was under way. And so was a series of events that would lead the Securities and Exchange Commission to file charges against Marc Belzberg and First City.

The SEC has charged that Belzberg and First City violated securities laws by concealing ownership of more than 5 percent of Ashland's stock. The SEC said the fraud involved "parking" of shares actually owned by the Belzbergs with the Wall Street firm of Bear, Stearns & Co. While Bear Stearns was not charged, the allegations concern stock purchases by the firm's top executive, Alan C. (Ace) Greenberg.

The stock parking, the SEC charges, was part of a scheme to save the Belzbergs millions of dollars by hiding their investment in Ashland, a move that allegedly enabled the Belzbergs to continue buying Ashland stock at artificially low prices.

The Belzbergs deny the charges, and later this year they will battle the SEC in federal court in Washington. But the case has significance that goes well beyond the Belzbergs and Ashland.

The case is a test of the SEC's ability to successfully prosecute alleged takeover abuses, especially stock parking, in cases where the facts are complex and the defendants contest the charges. The SEC's ongoing investigation of Drexel Burnham Lambert Inc. and its influential junk bond chief, Michael Milken, has focused on allegations that Milken engaged in an illegal stock-parking scheme with former stock speculator Ivan F. Boesky.

Drexel and Milken have denied any wrongdoing; Milken's personal defense lawyers include attorneys at Paul, Weiss, Rifkind, Wharton & Garrison, the same law firm that will represent the Belzbergs later this year.

Drexel and Milken are the subjects of a wide-ranging civil and criminal investigation into a pattern of takeover abuses. In contrast, First City and Marc Belzberg are the subjects of a narrow civil proceeding concerning only the Ashland deal.

What follows is the story of how the Belzbergs' bid for Ashland led the family into conflict with the SEC. It is also an anatomy of the complex issues surrounding stock parking, a securities violation that many on Wall Street claim is technical and picayune but that remains at the center of the most ambitious securities fraud investigation in SEC history.

Spread over Canada and the United States, the Belzbergs' financial empire is both enormous -- estimates peg its assets at more than $7 billion -- and tightly controlled by family members. The dynasty was founded by Samuel Belzberg's father, Abraham, who immigrated to Canada from Poland and built a modest fortune in real estate from the profits of a furniture store in Calgary.

Abraham's three sons -- Samuel, William and Hyman -- transformed that legacy into an influential economic empire through the liberal use of debt financing, a sharp eye for asset values, and an aggressive investment and takeover strategy. The second-generation Belzberg brothers remain exceptionally close, although Samuel Belzberg, as the chairman of First City, is the undisputed architect of the family's business strategy.

In recent years, a third generation of Belzbergs has begun to play a role in the family's financial affairs. Brent Belzberg, 36, Hyman's oldest son, works for First City in Toronto. And Marc Belzberg, after earning a master's degree in business administration and serving brief apprenticeships on Wall Street, has risen to direct the family's New York stock trading operations.

Making a Run at Ashland The family's decision early in 1986 to take a position in Ashland stock was arrived at casually, according to testimony by Belzberg family members. Ashland stock was recommended to Samuel Belzberg by a New York stockbroker named Alan D. Alan, whom Belzberg had known for less than two years.

The Belzbergs compared the value of Ashland's assets with the company's stock price. Within days, the family sensed that Ashland's shares were selling at a bargain price, making the company ripe for a takeover.

In New York, Marc Belzberg began placing orders with Alan to buy large amounts of Ashland stock. To maintain secrecy, the account used by Belzberg at Alan's brokerage was code-named "Debbs" and all confirmation slips and other statements were sent to the Manhattan apartment of a Belzberg employe, rather than to First City's offices. If word of the Belzbergs' Ashland purchases leaked out, speculation about a takeover attempt by the family would drive the stock price up, making their future purchases of Ashland stock more expensive.

As Marc Belzberg began to buy more and more Ashland shares during February 1986, his concerns about secrecy led him to shift his purchases from Alan's small brokerage to Bear Stearns, the Wall Street investment firm that the family regularly used to buy big blocks of stock. Bear Stearns was better equipped to disguise the Belzbergs' steady accumulation of Ashland shares by spreading the purchases among different traders on the market floor.

The shift also brought Marc Belzberg into daily contact with Bear Stearns Chairman Greenberg, a legendary Wall Street figure and the only major investment house chief executive who still spends most of his working hours trading stocks and bonds.

Greenberg -- a balding, hawk-eyed card hobbyist who competes in national bridge tournaments and plays a regular card game at Manhattan's Regency Whist Club with CBS Inc. chief executive Laurence Tisch and department store magnate Milton Petrie -- projects himself as a throwback to a Wall Street era that predates yuppies, cocaine raids and insider stock trading scandals.

In a characteristic memo circulated by Greenberg to Bear Stearns professionals in August, he complained about "expenses and carelessness," finally declaring, "I am tired of cleaning up poo-poos. The next associate of mine that does something 'un-neat' is going to have a little meeting with me and I will not be the usual charming, sweet, understanding, pleasant, entertaining, affable, yokel from Oklahoma."

"I don't ask clients many questions, I tell you that," Greenberg testified in an SEC deposition related to the Belzberg case. "I just do what I am told -- just a simple commission broker."

In February 1986, Greenberg the stockbroker began to follow Marc Belzberg's daily instructions, buying large blocks of Ashland stock while trying to shield his client's identity from the market.

With Greenberg's purchase of 12,200 Ashland shares on Feb. 28, 1986, the Belzbergs' holdings reached 1,409,100 shares. That was barely under 5 percent of Ashland's outstanding common stock and an investment worth more than $50 million.

If the Belzbergs chose to increase their holdings above 5 percent, they would be required by SEC rules to disclose their purchases and declare their intentions toward Ashland. The SEC's disclosure rule, known as 13d, is designed to alert investors and target companies about major accumulations of stock, since these often precede takeover bids and other transactions that affect stock prices.

The Belzbergs had to decide whether to stop their Ashland purchases at 4.9 percent, and maintain their secrecy, or continue their buying spree and disclose their plans. It was then that Marc Belzberg and Ace Greenberg had a series of conversations that would eventually come back to haunt them.

Crossing the Threshold On either Monday, March 3, or Tuesday, March 4, 1986 -- the record in the SEC case is unclear as to which day it was -- Marc Belzberg telephoned Ace Greenberg to discuss additional purchases of Ashland stock.

Two months after the event, in a sworn SEC deposition, Greenberg remembered the conversation this way: "He called me and said something to the effect that -- something like, 'It wouldn't be a bad idea if you bought Ashland Oil here' or something like that. And I took that to mean that we were going to do a put and call arrangement that we had done in the past."

In a "put and call" stock option agreement, Greenberg would purchase Ashland shares with Bear Stearns' money and hold the shares in one of the firm's own accounts. However, Belzberg would formally agree to assume all the market risks of the stock's ownership and to buy the shares at a later time.

Such stock option agreements are used by major investors to hide their ownership by avoiding disclosures under the Hart-Scott-Rodino Act. The Federal Trade Commission, which administers the act, started an inquiry last December to determine whether that loophole should be allowed to continue. That inquiry, and a related Justice Department review of the Belzbergs' compliance with the act, has not yet been completed.

As a matter of securities law, however, put and call stock option agreements are not an escape from the legal responsibilities of stock ownership. The Belzbergs would be required to disclose these and any other Ashland holdings to the SEC within 10 days after reaching 5 percent.

The Ashland deal was not the first time Belzberg and Greenberg had encountered the issue of who owned stock purchased by Bear Stearns. Just a few weeks earlier, when the Belzbergs were accumulating shares of Hartmarx Corp. in anticipation of a takeover attempt, Marc Belzberg had telephoned the Bear Stearns chairman when First City's holdings reached 4.9 percent.

As Greenberg recalled that conversation, "He called me and he said something to the effect that, 'I think you ought to buy some Hartmarx, and you won't lose any money. I will protect you.' "

Belzberg had told Greenberg that he was at the 4.9 percent threshold in Hartmarx stock. The Bear Stearns chairman warned his client that a stock option agreement would not protect Belzberg from SEC disclosure rules, even if Bear Stearns held the shares. Greenberg suggested that Belzberg consult his lawyers, which Belzberg agreed to do, according to testimony by both men.

Three hours later, Belzberg called back, and by Greenberg's recollection, "{he} said, 'You are absolutely right. They said absolutely don't do that.' " No stock option agreement was entered into.

That incident was fresh in Greenberg's mind, he later testified, when the Bear Stearns chairman had a similar conversation with Belzberg about Ashland shares on March 3 or 4. The difference this time, however, was that Greenberg said he did not know Belzberg's holdings had reached 4.9 percent. Greenberg testified that he never asked how much Ashland stock the Belzbergs owned.

In his deposition, Greenberg reminded his questioners that he had refused to park stock for Belzberg in the Hartmarx situation. "I want to point out that what I did was prior to Boesky and everybody else," Greenberg said. "This was done of my own free will and volition before anyone was indicted for anything."

Marc Belzberg testified later, however, that his understanding of the Ashland stock purchases was the opposite of Greenberg's. Belzberg said he was only recommending Ashland stock to Greenberg as an investment; the Belzbergs, he said, did not intend to be the true owners of the shares purchased by Greenberg under the terms of any stock option agreement.

"I thought the stock was cheap and was a good investment, and number two ... it is generally helpful to know where stock might be available in the event that at some future date one was looking to buy some," Belzberg testified in a deposition. Such tipping, while it may help a corporate raider acquire stock at a later date, is not necessarily prohibited by securities laws.

Over the next 11 days, Greenberg accumulated 330,700 shares of Ashland stock in the Bear Stearns arbitrage account, stock he thought belonged to the Belzbergs under a stock option agreement. Every few days, he talked with Marc Belzberg and reported on his purchases.

"When I talked to him, among other things -- we were doing other business at that time besides just Ashland -- I would discuss and say,'By the way, I am now long {an owner of Ashland stock}.' He'd say, 'Fine, keep going,' or something to that effect," Greenberg testified two months after the event.

An entry in Samuel Belzberg's desk diary for March 15 says "Ashland equals Ace Greenberg." Samuel Belzberg could not recall later why he made the diary entry.

It was on the weekend of March 16 that Marc Belzberg flew to Los Angeles and discussed the Ashland takeover attempt with his father, Samuel, and his uncle, William.

On that Sunday morning, the family decided to go forward with more Ashland purchases. Samuel Belzberg gave his son official permission to cross the 5 percent threshold by buying Ashland shares outright and making the required public disclosure with the SEC.

But the SEC charges that by then the Belzbergs had already violated securities laws by crossing 5 percent and failing to disclose their true ownership. The SEC alleges that the Belzbergs improperly failed to file a 13d on March 14 -- enabling the family to save millions of dollars, since they continued buying shares at artificially low prices.

Samuel Belzberg argued that the Belzbergs could not have gone beyond the 5 percent level as early as March 14 because he did not authorize Marc Belzberg to make the purchases.

"I'm the only one that has authority to go over 5 percent and cause a filing," Samuel Belzberg later testified.

On Monday morning, March 17, Marc Belzberg telephoned Ace Greenberg and asked if he had any shares of Ashland to sell. "He said, 'How much do you have?'" Greenberg recalled. "I said, '330.' He said, 'Do you want to sell it?' And I laughed and said, 'Yeah, I want to sell it.' "

Greenberg laughed because he believed that the 330,700 shares of Ashland stock in the Bear Stearns arbitrage account already belonged to Belzberg under a stock option agreement. Belzberg later testified that he believed the opposite.

The SEC Steps In By the time the management of Ashland Oil was officially notified about the Belzbergs' takeover plans, the family had accumulated 9.2 percent of the company's stock. The Belzbergs substantial holdings put pressure on the oil company.

SEC disclosure requirements require a bidder who reaches 5 percent to file a 13d within 10 days. During those 10 days, the bidder can buy more stock. According to the SEC, the Belzbergs purchased more than 800,000 Ashland shares, or about 3 percent of the company, after a 13d should have been filed on March 14.

On March 25, Samuel Belzberg wrote to the chairman of Ashland Oil and proposed to buy the entire company for $1.7 billion, or $60 a share. The Ashland board hurriedly assembled and voted to reject the Belzbergs' overture.

A week later, the company bought its peace. Ashland's management agreed to pay "greenmail" to the Belzbergs: for $134.1 million, the company bought back all the Ashland shares owned by the family for $51 a share. In return, the Belzbergs agreed to drop their takeover bid. The Belzbergs made a $15.4 million pretax profit on the transaction.

A formal SEC investigation of the Ashland-Belzberg situation was under way soon after the greenmail deal was negotiated. SEC lawyers quickly spotted the accumulation of hundreds of thousands of shares by Bear Stearns on behalf of the Belzbergs.

Marc Belzberg later testified that when he heard about the SEC investigation, he called Greenberg two more times to discuss his purchase of Ashland shares from Bear Stearns.

Belzberg testified that differing views of who had really owned the stock all along reflected an honest miscommunication between him and Greenberg.

Greenberg later agreed that there had been what he thereafter referred to as an "honest misunderstanding" over Bear Stearns' accumulation of Ashland stock between March 4 and March 17. While Greenberg thought he had been accumulating Ashland shares for the Belzbergs, Marc Belzberg thought that Greenberg was buying the shares for himself. The whole thing, they said, had been an honest mistake.

Charges and Denials SEC enforcement division lawyers never accepted the "misunderstanding" explanation given by Greenberg and Belzberg. To them, the accumulation of the Ashland Oil shares by Bear Stearns looked like a clear case of stock parking for the Belzbergs.

In August 1986, after failing to persuade the Belzbergs to settle the charges, the SEC filed a civil lawsuit in Washington against First City and Marc Belzberg.

The SEC has never accused Greenberg of wrongdoing. Even if, as the commission charges, Marc Belzberg knowingly used Bear Stearns to accumulate Ashland stock and subsequently violated SEC disclosure rules, no evidence was ever produced that Greenberg knew First City had surpassed the 5 percent threshold.

"They never questioned my role or my veracity in this thing," Greenberg said.

The trial of SEC v. First City and Marc Belzberg is scheduled to be heard by Judge Barrington D. Parker in federal court in Washington in December.

A memo submitted to the court by the SEC argues that the defense "misunderstanding" theory is implausible because Greenberg regularly informed Belzberg about his Ashland purchases between March 4 and March 17, and Belzberg encouraged him to buy more by replying "Fine, keep going."

Belzberg defense lawyers, however, counter that since both Greenberg and Belzberg have testified that their phone conversations were uniformly brief and cryptic, there is no reason to doubt that they simply misunderstood each other during the mid-March talks.

"Perhaps the real significance of these telephone calls lies not in the words used, but in the fact that the discussion was always extremely brief," a defense memo argues.

"The information conveyed was perfectly consistent with each party's different understanding," the memo states.

The Belzbergs and their attorneys declined further comment.

The SEC is seeking an injunction against Marc Belzberg and First City that would prohibit future violations of the securities laws.

In addition, the SEC wants the Belzbergs to give up about $2.7 million in stock trading profits it says were obtained illegally as part of the scheme.

It will be Parker's job to choose between the defense and SEC theories in the case. When he does, the judge will send a message to government investigators and Wall Street about the future of complex stock parking probes.