Until 4:40 p.m. yesterday, Ivan F. Boesky was the biggest and fastest player in Wall Street's most lucrative game.
At 4:41 p.m., Boesky crashed.
His rise to power and fame was in New York, where as an arbitrageur he made hundreds of millions of dollars investing in stocks of companies that were takeover targets. His crash came in Washington, at a late-afternoon Securities and Exchange Commission press conference, when the government revealed that Boesky has been making many of his millions by trading stocks illegally on the basis of confidential information about upcoming deals.
Boesky agreed yesterday to settle SEC insider trading charges by paying the government a staggering $ 100 million -- $ 50 million in repayment of illegal trading profits and a $ 50 million fine. In addition, he agreed to plead guilty to one related criminal charge and to cooperate with the government's continuing investigation.
In an era of roaring corporate takeover activity, the 49-year-old Boesky, more than anyone else on Wall Street, symbolized the tremendous wealth that can be accumulated buying and selling takeover stocks. Sometimes known as "Piggy" because of the enormous size of his investments in nearly every takeover target, his specialty was takeover arbitrage, and until yesterday, he was considered to be the world's leading arbitrageur.
Takeover arbitrage, as it is practiced legally, involves buying the stock of a corporation that is a takeover target after a takeover bid is publicly announced. The arbitrageur profits on the difference between the cost of buying the stock today and the higher price finally paid to stockholders when the takeover deal is completed several months later.
The way that Boesky often played the game, which has caused controversy for the last several years, was to purchase large positions in takeover targets before takeover bids were publicly announced. While he argued repeatedly that he purchased those stocks on the basis of public information after doing financial analysis, his admission of guilt yesterday reveals that the man who moved from Detroit to New York to make his fortune often used other, more reliable methods.
According to SEC documents, those methods including learning about upcoming takeover bids from investment banker Dennis Levine, who either was involved in arranging the deals or learned about them from others. Levine, once a star deal maker at Drexel Burnham Lambert Inc., pleaded guilty to insider trading charges in May and has been cooperating with the government in its ongoing insider trading investigation. Sources said it was Levine who led investigators to Boesky.
Because the takeover bids Boesky learned of were launched at premium prices, nearly every one led to rapid rises in stock prices. Boesky used the confidential information to illegally make enormous profits in the stocks of well-known takeover targets including Nabisco Brands Inc., General Foods Corp. and Union Carbide Corp.
Before Levine was charged by the SEC with insider trading last May, Boesky regularly answered calls from journalists and delivered speeches defending and explaining the practice of arbitrage. After Levine was charged, Boesky stopped answering those calls and disappeared from the public scene.
Sources said that Boesky was held in such high esteem by Drexel Burnham that the firm helped him raise nearly $ 1 billion last year to invest in future arbitrage deals. Boesky published a book last year describing the practice of arbitrage, in which he gave detailed examples of how to make money trading takeover stocks on the basis of public information. He dedicated the book to his father, who came to the United States from Russia in 1912.
"With this inspiration, I write this book for all who wish to learn of my specialty, that they may be inspired to believe that confidence in one's self and determination can allow one to become whatever one may dream," Boesky wrote. "May those who read my book gain some understanding of the opportunity which exists uniquely in this great land. This book is dedicated to ending the tall tales about risk arbitrage."
Ivan F. Boesky, also nicknamed "Ivan the Terrible" by corporate executives who feared that his purchase of a major stock position in their companies would force a takeover, "is a native of Detroit," according to his official resume. After not completing undergraduate studies at Wayne State University in Detroit, his resume says he "took a J.D. [law] degree from the Detroit College of Law" in 1964, and subsequently served as a law clerk in U.S. District Court and a tax accountant with Touche, Ross & Co., before moving to New York in 1966 as a securities analyst with L.F. Rothschild Co.
His academic and early professional years have been described by those who know him as "undistinguished." In 1972, he was named a general partner in the Wall Street brokerage firm of Edwards & Hanly, where he operated the firm's securities arbitrage department until the firm went bankrupt in 1975. He then started his own firm.
Boesky's start in takeover arbitrage coincided with the beginning of the wave of corporate takeovers that provide opportunities for this special brand of investing. He once explained in an interview that after losing money trading stocks on the basis of general analysis, he determined that a more certain way to make money was by investing in takeover targets. In those situations, he said, the risks and rewards could be more precisely determined.
Boesky, a major contributor to the Republican party and regular lecturer at New York University's Graduate School of Business, gained unwanted publicity recently when a family dispute arose over his handling of funds from the Beverly Hills Hotel, the famous Los Angeles hotel he controls.
He often boasted that he found work so stimulating that he slept only two to three hours a night, surviving mainly on massive doses of coffee. While defending his 22-hour-a-day arbitrage, Boesky often argued that his life had broader meaning. "I don't want you to think that I am just a greedy guy," he said last year.
Asked if he could continue living such a fast life, Boesky replied, "I can't predict my demise, but I suspect it will occur abruptly."