THE MAN who boasted, "Greed is healthy. You can be greedy and still feel good about yourself" will have three years to think about that proposition. Ivan Boesky, the leading figure in the Wall Street insider trading scandal, was sentenced to prison Friday for his crime. U.S. District Judge Morris Lasker said, "Some kind of message must be sent to the business community that such activities cannot be wholly repaired simply by repaying people after the fact." Was the penalty for this white-collar first offender too harsh? We don't think so. In fact, a good argument can be made that he worked out a very sweet deal with prosecutors, considering the magnitude of his scandalous operations.
Mr. Boesky was well known on Wall Street as an aggressive trader and self-described expert on risk arbitrage. He even wrote a book describing his economic theories and game plans for the market. It turns out, though, that he wasn't so much a scholar as a schemer who used inside information -- not scientific analysis or brains -- to build a personal fortune in the hundreds of millions of dollars. His greedy deals hurt thousands of other investors and rocked the public's confidence in the stock market. Implicated early in the scandal by one of his confederates, Dennis Levine, Mr. Boesky initially faced charges on at least seven felonies involving insider trading.
Within days of receiving an SEC subpoena, however, his lawyers arranged a plea bargain. Mr. Boesky admitted his guilt with respect to one charge, and the government dropped the others and promised not to prosecute him for any other crimes uncovered subsequently. He paid $100 million to the government. Half was put in what is called a disgorgement fund -- a return of illegal profits -- to indemnify some of his creditors. The rest was a fine. The fine, however, was paid in stock, which has lost 40 percent of its value since it was transferred.
In exchange for being allowed to plead to a single felony -- with a maximum sentence of five years -- Mr. Boesky has been cooperating with the government in the broader investigation of Wall Street. His lawyer told Judge Lasker that he had implicated 14 additional suspects and five major brokerage houses, so perhaps the hastily arranged plea bargain paid off. Before you shed too many tears for Mr. Boesky, remember that his family still has millions of dollars in assets, and he will be eligible for parole in 12 months. This, of course, could change dramatically when those who were cheated by him prosecute their lawsuits.