The Securities and Exchange Commission has been investigating whether Houston investor Charles Hurwitz leaked information about his 1986 takeover bid for Alamito Co. to Marcus Schloss & Co., a Wall Street firm involved in the "Yuppie Five" insider stock trading case, sources said yesterday.
The SEC has examined the relationship between Hurwitz and Ron Yagoda, a Marcus Schloss executive, and has probed whether Yagoda traded Alamito stock in February 1986 based on tips from Hurwitz or his employes, sources said. Yagoda is a former employe of Hurwitz, sources said.
Hurwitz was subpoenaed by the SEC in January 1987 and provided documents, but has not been asked to testify in the Marcus Schloss case, according to his spokesman, Frank Mankowitz, who said Hurwitz does not believe he is a focus of the investigation.
Two former Marcus Schloss employes have pleaded guilty to insider trading charges and are cooperating with investigators in the Yuppie Five case, involving a group of young Wall Street professionals who illegally traded stock tips.
Hurwitz was accused in a congressional report released yesterday of securities law violations in connection with his hostile takeover bid for Pacific Lumber Co. in 1985. The report said Hurwitz may have concealed his ownership of some Pacific Lumber shares by parking stock with the Jefferies & Co. stock brokerage firm.
Stock parking could enable a corporate raider to buy shares in a company at artificially low prices by avoiding federal disclosure rules. If a raider's interest in launching a takeover bid or his ownership stake in a potential target were disclosed, that could drive a stock price up, making future purchases more expensive.
Under questioning yesterday by members of the House Energy and Commerce Committee's oversight and investigations subcommittee, Hurwitz repeatedly said he had not violated securities laws.
"Let me state categorically for the record that I know of no illegal or improper activities in connection with this transaction," Hurwitz said.
The stock parking controversy concerned Hurwitz's dealings with Boyd L. Jefferies, the former head of the California-based securities firm. Jefferies purchased and later sold to Hurwitz Pacific Lumber shares under stock option agreements that would have enabled Hurwitz to avoid disclosures.
Jefferies resigned as chairman of the California brokerage firm earlier this year after being charged in the Ivan F. Boesky insider stock trading scandal. He was accused of helping Boesky conceal his ownership of stock in a stock parking scheme.
Hurwitz has been questioned by the SEC about the Pacific Lumber transaction as part of the SEC's on-going probe of Drexel Burnham Lambert Inc., according to his attorney, Stuart Eizenstat. Drexel arranged Hurwitz's financing for the deal.
At the hearing yesterday, a December 1986 New York Stock Exchange memo to the SEC's enforcement division was released. The memo urged the SEC to examine the arrangement between Hurwitz and Jefferies. It also urged the SEC to determine whether there was any illegal, insider stock trading in Pacific Lumber shares by Stanley Cohen, an associate of Hurwitz' whose company and ex-wife purchased Pacific Lumber shares just prior to Hurwitz's bid for the forest products company. Cohen testified yesterday that he did not violate securities laws because the profitable trading in Pacific Lumber was based on a recommendation from a business executive, not Hurwitz.
The NYSE memo also urged the SEC to examine trading in Pacific Lumber by Herbert Gordon, a Westport, Conn., businessman who could not be reached for comment yesterday. The Marcus Schloss investigation has become a source of controversy at the SEC's New York office. A dispute between former New York regional director Kathleen Warwick and former New York enforcement chief Anne Flannery over the case was one of the factors that led to Warwick's resignation last week, sources said.
Sources said Warwick and Flannery disagreed about a memo presented to Warwick by the New York enforcement staff that recommended that the SEC bring charges against Yagoda and the Marcus Schloss firm. The memo recommended that no charges be filed against Irwin Schloss, another Marcus Schloss executive, sources said.
Sources said Warwick felt the case against Yagoda and Marcus Schloss was not strong enough to warrant charges, while Flannery and other enforcement staff members disagreed. The present status of the Alamito probe, one part of a broad investigation of Marcus Schloss, could not be learned.
Sources said Marcus Schloss traded Alamito stock around the time that Hurwitz became involved in an on-going, complex fight for control of Alamito, an Arizona-based electric power distributor. Attorneys for Marcus Schloss declined comment.