Ivan Boesky

Born March 6, 1937 (Detroit, Michigan)

Wall Street financier, white-collar criminal

Ivan Boesky worked in the fast-paced, high stakes world of Wall Street investing during the suddenly lucrative years of the 1980s. He was a financier who built a highly successful business by trading stock in companies experiencing financial difficulties. Boesky, however, became involved in a financial scam using "insider trading" (buying and selling stocks based on information not available to the general public), amounting to billions of dollars. Boesky was caught and put on trial, and the country was shocked by the extent of stock related thefts revealed during the government's investigation of Boesky and other financiers. For his crimes in the insider trading scandal Boesky paid fines, served prison time, and was banned from the securities (stocks and bonds) industry for life.

"Greed is all right, by the way. I want you to know that. I think greed is healthy. You can be greedy and still feel good about yourself."

A golden opportunity

Ivan Frederick Boesky was born in Detroit, Michigan, in 1937. His father, William H. Boesky, had immigrated to America from Ykaterinoslav, Russia, in 1912. William ran a chain of bars in Detroit. Ivan spent two years at Cranbrook, a prestigious prep school (private school where students prepare for
college) outside of Detroit where he distinguished himself as an outstanding wrestler. He graduated from an inner-city school called Mumford High and went on to several colleges but never completed a degree.

Ivan eventually enrolled at the Detroit College of Law, which did not require a college degree for admission. He graduated in 1964. While working as a law clerk for a federal district court judge in 1960, Ivan met Selma Silberstein and they married. Soon after they had their first child, Billy, and in 1966 they moved to New York City where Ivan started a new career trading stocks.

In his thirties, Ivan had found work at several securities firms on Wall Street but had little success. As a result he decided to start his own trading firm. With financial help from his in-laws, he opened and was managing partner for the Ivan F. Boesky Corporation in 1975. Boesky's specialty was trading stock in companies targeted by other companies for takeover. The companies were typically in trouble financially and their stock values had fallen. A takeover by a healthy company, however, would often send the stock prices soaring. Boesky's success in speculating on these stocks made him one of the richest traders on Wall Street by the 1980s. In 1981 he became chairman and chief executive officer of the Boesky Corp.

Boesky developed a working relationship with Drexel Burnham Lambert, a New York investment bank where Dennis Levine was a managing editor and Michael Milken (1946–; see sidebar) was a financial executive. Boesky and Levine made a deal in which Boesky would pay a percentage of his profits to Levine for insider tips on upcoming company mergers, trades, or takeovers. This highly illegal activity is called insider trading.

White-collar crime

Insider trading occurs when any person on Wall Street receives confidential information about the movement of stocks or planned mergers and acquisitions. The person then takes that information and uses or trades it for personal gain. In 1934 the federal government set up the Security Exchange Commission (SEC) to regulate Wall Street. The SEC made it illegal for anyone to act on insider information; if a person receives "insider" knowledge of some sort, he or she is required to keep this information secret and not act upon it. Wall Street was booming in the 1980s, but some wanted more—those participating in illegal activities included everyone from bankers and lawyers to major investors and stockbrokers.

Boesky and his partners not only profited from insider information, but they were able to manipulate the market value of stock prices through the formation of limited partnerships to further increase their earnings. Boesky's strategy was to create a limited company with capital (money) provided by partners, then pay more than the current trading price for that

Michael Milken, The Junk Bond King

For generations the American bond market has been dominated by two large bond rating agencies, Moody's and Standard & Poor's. The agencies rate a corporation's risk factors in order to help guide investors on Wall Street. Companies trying to attract investors are given a rating and are divided into two categories—either investment grade or below-investment grade bonds.

A "AAA" rating is risk-free and given to top, blue-chip corporations. Risk-free bonds usually yield very low interest rates to investors. BBB is the lowest credit rating considered to be a worthy investment grade. Below BBB are the speculative or high-yield bonds Wall Street called "fallen angels," because their companies had fallen on hard economic times. These bonds pay high interest and are sold at a discount because of their high risk factor. The fallen angel name stood until the 1970s when Michael Milken arrived on Wall Street.

Milken became known as the "Junk Bond King" because he made his fortune trading in the high-yield, low-grade bonds, which he nicknamed "junk bonds." In 1973 Milken started with two million dollars in capital at his company, Drexel Burnham Lambert, in New York City. He had found buyers for his own company's bonds by sharing his vision of the untapped market. Milken soon generated a 100-percent return of the money invested in his company.

The next year Milken received double the amount of capital from his growing roster of clients, since they had made handsome returns on their investment. While other Wall Street traders tried to copy Milken, few could match his success. Impressed with Milken's achievements, additional investors contacted him and he soon accounted for most of Drexel's profits. In 1978 Milken moved his branch of Drexel from New York to Beverly Hills, California.

In the late 1970s corporate raiders were buying struggling companies and selling off pieces of those businesses and their assets at a huge gain. Milken transformed the art of speculating on these corporate takeovers with his ability to raise large amounts of capital using high-yield junk bonds. He knew the market and could raise capital for investors on short notice, but his methods were not always legal. Milken himself received huge bonuses from his company. One year he earned a total of $550 million.

Milken's involvement with insider trading practices became a focus of the SEC investigation in 1986 when Ivan Boesky agreed to be a government informer as part of his plea bargain. In September 1988, the SEC filed charges against Drexel and
Michael Milken under the 1970 RICO (Racketeer Influenced and Corrupt Organizations) statute. The SEC accused the defendants of trading on inside information as well as filing false disclosure forms with the SEC to disguise stock ownership.

Drexel and Milken were accused of manipulating stock prices, of keeping false records, and of defrauding their own clients. Drexel plead guilty to six felony counts of securities fraud on December 21 and paid a $650 million settlement fee. The company also agreed to assist in the indictment against Milken. Two months later, Milken was indicted on ninety-eight counts, including insider trading and racketeering.

In a plea bargain, Milken agreed to plead guilty to six charges of securities fraud and related charges while the government agreed to drop the more serious charges of insider trading and racketeering. On April 14, 1990, Milken was sentenced to ten years in prison and fined $600 million. He entered the minimum-security prison at Pleasanton, California, in 1991, but was released two years later when he was diagnosed with prostate cancer.

Michael Milken was seen as a financial visionary who could have influenced corporate restructuring in America without breaking the law. Instead, his manipulation of stocks and company buyouts resulted in a large number of bankruptcies, especially for small- and medium-sized companies. The corporate consolidations and layoffs resulting from the Drexel's high volume of takeovers left few defenders once the investigation caught up with the firm.

The resulting investigations and indictments also resulted in a loss of investor confidence in the nation's financial markets for years. Investors returned to traditional bluechip stocks and mutual funds until enough time had passed and confidence returned to the riskier junk bonds. Following the insider trading scandal, Congress increased criminal penalties for securities violations.

company's shares which in turn brought in other investors believing the stock's potential. As a result of the buying, the stock value would rise and Boesky would sell his stock at the inflated prices, splitting the profits among the limited partners.

By the mid-1980s most of Boesky's capital resulted from his close association with Michael Milken of Drexel Burnham Lambert. Boesky, Milken, and others involved in the insider trading and market manipulations accumulated extraordinary fortunes from their criminal activities. Sophisticated schemes were necessary to conceal their deceit. They set up secret bank accounts to hide their money and misled federal regulators attempting to monitor their activities.

All those involved in the schemes were aware of the fines and the possible imprisonment they faced if caught; the lure of riches and the likelihood of little jail time kept them going. Public opinion also played a part in the continuing fraud. The social harm caused by white-collar criminals, especially those with high social status, was not known to the average person in the 1980s. It was commonly seen as a lesser evil than crime involving physical violence and injury. This opinion, however, was about to change.

The symbol of greed

In 1985 the SEC began an investigation after detecting suspicious activity on the stock market. With insiders trading privileged information, various company stocks were being purchased in a dramatic fashion just before a major announcement about a merger or sale of the company was made. The Southern District of New York also conducted an investigation at the same time as the SEC. The prosecutor in charge of the case was U.S. attorney and future mayor of New York City Rudolph "Rudy" Giuliani (1944–).

In 1986 the SEC investigation trail led to Dennis Levine. As a result, Levine made a deal with authorities and turned in his partner, Ivan Boesky. With solid evidence that Boesky was trading insider information, he entered a guilty plea on November 14, 1986. Boesky struck a bargain with Giuliani and the SEC that included a $100 million fine and a three-year prison sentence, served mostly at California's Lompoc Federal Prison Camp. As part of the deal, Boesky agreed to act as a government informer to help break up the illegal activities of others on Wall Street.

Because of Boesky's cooperation, subpoenas (court orders requiring testimony in court) were issued to some of America's wealthiest financiers, including Michael Milken. Boesky himself went from being one of the wealthiest and most successful figures on Wall Street to being banned from the securities industry. His name would forever be linked with scandal and corruption. Following his prison time Boesky continued living on his great wealth but avoided public attention.

Many saw Boesky as the visible symbol of the greed and excess of the 1980s. Oliver Stone directed a movie called Wall Street, inspired by the financial crimes of the decade. The script's main character was a high-powered financier who steals a line from Ivan Boesky himself when he announces that "greed is good."

For More Information

Books

Boesky, Ivan F. Merger Mania: Arbitrage, Wall Street's Best Kept Money-Making Secret. New York: Holt, Rinehart and Winston, 1985.

Bruck, Connie. The Predators' Ball. New York: Penguin Books, 1989.

Stein, Benjamin J. A License to Steal: The Untold Story of Michael Milken and the Conspiracy to Bilk the Nation. New York: Simon & Schuster, 1992.

Stewart, James B. Den of Thieves. New York: Simon & Schuster, 1991.

Web Sites

Cramer, James J. "Bad Boys, Bad Boys." New York Magazine & Metro TV, October 20, 2003. http://newyorkmetro.com/nymetro/news/bizfinance/columns/bottomline/n_9352 (accessed on August 15, 2004).

"Ivan-owe." Philadelphia City Paper. http://citypaper.net/article/112201/news.ivan.shtml (accessed on August 15, 2004).

"Moyers on Enron and History." Public Affairs Television.http://www.pbs.org/now/commentary/moyers.html (accessed on August 15, 2004).