Den of Thieves

by James B. Stewart

  Boesky didn’t limit his remarks to subjects in the proffer. He told them not only about his visits to Gulf + Western with Icahn, a possible 13-D violation, but also about the manipulation of Gulf + Western’s stock price involving Mulheren. He described Mulheren’s other activities on his behalf. And he told them of dealings not mentioned in the proffer, such as his involvement in Britain’s Guinness scandal. He also said he suspected that Goldman, Sachs’s Bob Freeman was involved in insider trading.

  Carberry began to have renewed respect for the wisdom of the securities laws, especially the seemingly technical provisions. What Boesky described reminded him of the 1920s—the secret pooling of interests, the manipulation of stock prices—but his revelations went even beyond that to include the creation of phony takeover threats and the putting of companies in play. He would never have believed that securities law violations were so prevalent or so varied.

  The lawyers were also struck by the hierarchy of power and influence within Boesky’s world. They had always thought that Boesky was a major player on Wall Street. Now, however, they reached the same conclusion that Boesky’s lawyers had: Boesky was second-tier. He depended on Milken and Drexel.

  Over and over, Boesky told Carberry and the other lawyers that Milken had become the most important man in his life. If Milken told him to do something, he did it, because Milken could make him rich, or destroy him.

  The government debriefings continued for weeks. To preserve secrecy, they moved from hotel to hotel; most were located just outside of Manhattan in Westchester County, not far from Boesky’s estate. Between sessions, Boesky commuted to his offices in Manhattan as usual, taking care not to alert even his own employees that anything major was afoot. Elaborate monitoring equipment was installed in Boesky’s communications system, allowing the government to listen in and record every conversation.

  At the government’s behest, Boesky placed calls to everyone he’d implicated. Boesky was instructed not to press, not to try to put words in his targets’ mouths, to behave as naturally as possible. At the same time, Carberry told Boesky that the more successful he was as an undercover agent, the less likely it was that he’d have to appear as a witness.

  After two fruitless efforts, Boesky succeeded in getting Boyd Jefferies, head of Jefferies & Co., the West Coast brokerage firm, to make some incriminating remarks. Siegel was extremely wary, however, reluctant even to take Boesky’s calls. Conversations with Milken were frustrating. Milken took Boesky’s calls but was always in a hurry to finish. He limited the talk to issues of immediate concern. Milken also had a tendency to speak in sentence fragments, which, though meaningful to people around him, would be confusing and inconclusive for jurors. Finally, the government decided that Boesky would have to arrange a face-to-face meeting with Milken.

  That summer, Boesky had attended a fund-raiser in Denver for the United Jewish Appeal; he stayed with Larry Mizel, the head of MDC Corporation, a Drexel client. Immediately after Boesky left, an FBI agent showed up and quizzed Mizel about who had been staying with him. When Mizel confirmed that Boesky had been his guest, he received a subpoena for his phone records. Mizel called Jim Dahl, the star Milken salesman.

  “You won’t believe this,” he said breathlessly, “but the FBI just left my house.” He explained that the agent had been asking about Boesky.

  Dahl told Lowell Milken. Lowell pulled Michael off the trading desk, called him into his office, and made Dahl repeat the entire story. Michael Milken suddenly looked ashen, as if he’d seen a ghost, Dahl thought. From then on, Milken indicated, they should be careful in their dealings with Boesky, and assume that any conversations with him were being monitored. But when Boesky called, saying he wanted to get together with Milken in mid-October, Milken agreed.

  Soon after, Cary Maultasch, the former Beverly Hills employee who had moved to New York but still handled Milken’s trading, got a call from Charles Thurnher, who’d kept track of the Boesky scheme for Milken. Thurnher told Maultasch to get rid of any records relating to Milken’s dealings with Boesky. Later, he called to get an “update” of the Boesky situation, and Thurnher assured him the records had been destroyed. Maultasch asked what was going on. Thurnher was cryptic, but mentioned that Milken had scheduled a meeting with Boesky at the Beverly Hills Hotel.

  The next day Milken called Maultasch. “I think that’s a horrible idea,” Maultasch said of the plan to meet with Boesky. Milken told him not to worry. He said he’d be careful and would assume he was “speaking for the record.”

  In mid-October, Boesky and Tom Doonan, the investigator who was now assigned to handle him, met with Pitt in Pitt’s small room at the Beverly Hills Hotel. They’d flown to Los Angeles separately so as not to attract attention.

  Doonan asked Boesky to remove his shirt so he could attach a small battery pack and tiny microphone, but was disconcerted when he discovered Boesky wasn’t wearing an undershirt under his expensive white dress shirt. Doonan didn’t want to tape the microphone to Boesky’s skin, so he shed his own clothes, offering Boesky his undershirt. Boesky hesitated. Doonan ordered him to put it on.

  “Ivan breaks out in a serious rash if he puts anything that costs less than $250 next to his skin,” Pitt quipped.

  Boesky donned Doonan’s T-shirt, and Doonan hooked up the microphone. It would broadcast from Boesky’s suite on the first floor, where he was scheduled to meet Milken shortly after 1 P.M. Pacific time, into a tape recorder in Pitt’s room.

  “What happens if I get caught, if he figures out I’m taping?” Boesky asked nervously. He was still terrified of Milken, who had close friends in the casino industry. Boesky feared that someone might try to rub him out. “Get the hell out of there” if anything goes wrong, Pitt advised. “Just run out.”

  Boesky returned to his own suite. While they waited for Milken, Pitt asked Doonan if he wanted to order lunch from room service. Doonan was shocked that a hamburger at the Beverly Hills cost $16. Government regulations prevented him from accepting a meal paid for by someone else, and his modest per diem wouldn’t cover anything on the menu, so he declined, even though he was hungry. He watched as Pitt ate a hamburger.

  Boesky waited anxiously in his suite. A room-service waiter knocked, then wheeled in a table laden with food. Milken arrived moments later. Boesky greeted him, then paced nervously as the black-jacketed waiter fiddled with the dishes, silverware, and ice. They didn’t have much time to spare. “That’s fine, just leave it,” Boesky finally said to the waiter. “Would you please get out of here?”

  Boesky and Milken chatted briefly about the market. Boesky seemed himself. He was ordinarily so stiff and awkward that any nervousness at being wired seemed natural. Then Boesky turned the conversation to its real purpose.

  “The SEC subpoenaed my records,” he confided to Milken. The commission was “breathing down my neck.” He indicated he was worried he was going to have to deal with the calculations of profits and losses on his “arrangement” with Milken, and wanted to make sure they had the same story.

  “Well, my guy doesn’t remember anything,” Milken said, evidently referring to Thurnher. “Does yours?” Boesky took that as a veiled suggestion to have Mooradian destroy any records. Milken and Boesky went back and forth, with Boesky trying to get Milken to make a more explicit acknowledgment of their dealings.

  “If we’re asked, what will we say about the $5.3 million?” Boesky asked.

  “We could say the $5.3 million outstanding was for investment banking services,” Milken volunteered.

  “What services can we say were included?”

  Milken started mentioning some of the deals Drexel had explored for Boesky, but Boesky said he didn’t have any documentation to back them up. Milken said he’d send Boesky some papers for his files. Then Boesky pushed the conversation a bit further, saying that he hadn’t entirely made up for what he owed Milken with the $5.3 million payment. “You know, I’m still holding this for you,” Boesky said.

  “Keep it,
” Milken cagily replied.

  Before Boesky could make further progress, Milken made a remark that startled him. “You’ve got to be careful,” Milken warned Boesky. “Electronic surveillance has gotten very sophisticated.” Boesky nearly panicked. Was Milken catching on? He quickly brought the meeting to a close.

  Boesky was elated that he’d gotten through the session without being discovered by Milken. Nothing Milken said would be a “smoking gun” at any future trial, but the tape would be useful probative evidence. Milken had never denied the existence of their scheme; he’d never denied that Boesky owed him money. The discussion of the payment, and how it could be characterized as an investment banking fee, plainly suggested a cover-up. The whole discussion made little sense unless Boesky’s version of the conspiracy were, in fact, true. Doonan and the prosecutors were impressed by Boesky’s finesse, and felt they’d gotten more from the meeting than they expected.

  Milken had, of course, been forewarned by the call from Mizel, and the meeting only heightened his suspicions. After leaving the Beverly Hills Hotel, Milken called Joseph in New York. “Boesky’s acting weird,” Milken said. “I want him watched.”

  Time was running out for the government’s undercover operation. On November 15, Northview had to make the SEC filing disclosing the fact that Boesky was under investigation. No one would talk to Boesky after that.

  The SEC, in particular, was worried about how the stock market would react to any rumors of Boesky’s imminent demise. The great bull market of the 1980s had been fueled in part by arbitrageurs like Boesky, who valued stocks in terms of their takeover value, not by the more conservative measures of earnings or book value. In an unusual step, the government decided that the Boesky news would be released after the market closed on Friday, November 14. That would give investors a weekend to digest the news before making any precipitous decisions.

  Chairman Shad, in particular, remained concerned about safeguarding the SEC’s $100 million, which in part depended on the value of Boesky’s huge portfolio. The SEC also worried that having Boesky dump his stock all at once might, in and of itself, put the stock market into a tailspin. The commission therefore directed Boesky to begin liquidating some of his holdings during the two weeks preceding the announcement. He would continue overseeing the remainder of the portfolio for another 18 months. These steps, Lynch felt, would reassure the market and protect the government’s financial interest.

  The government lawyers also had to think about the future course of the investigation. They knew that the moment the Boesky agreement was made public, everyone he might conceivably implicate would begin to cover their tracks. The lawyers didn’t want evidence destroyed, so they prepared a blitz of subpoenas for potential targets and witnesses. Once subpoenas were served, any destruction of evidence would be grounds for obstruction of justice charges. Process servers were poised to fan out through New York, in Los Angeles, and wherever else necessary, to deliver subpoenas to Siegel, Milken, Drexel, Jefferies, Icahn, and many others right after the market closed at 4 P.M.

  All that remained was the big announcement. Giuliani in New York and Shad in Washington scheduled simultaneous press conferences for 4:30 P.M. on Friday, November 14. All was in place, Lynch and Carberry believed, for the law enforcement triumph of the decade.

  That Friday afternoon, Mooradian was looking over the firm’s net capital position. Something was wrong. Boesky only sold positions for two reasons: to profit (or cut losses) at the consummation of a merger, or to meet net capital requirements. But now Boesky had been whittling down the portfolio for months, and the selling had accelerated in the past two weeks. Their positions had actually peaked soon after March 21, the day of the Hudson Funding closing, at about $3.1 billion. Now it was down to less than $1.6 billion. Many of the positions were in big-capitalization stocks like Eastman Kodak and Time-Life, not in the takeover plays that Boesky usually favored. This wasn’t like Boesky at all, Mooradian thought.

  When Boesky’s secretary, Ianthe Peters, called, telling Mooradian and several other people in the back office to be at 650 Fifth Avenue for a 3:15 P.M. meeting, Mooradian concluded that Boesky was going to wind up the partnership, as he had once wound up Ivan F. Boesky & Co. “This is it, we’re going out of business,” he gloomily told his colleagues at 11 Broadway, hoping he’d be proven wrong.

  When Mooradian, Reid Nagle, and others in the downtown delegation arrived at Boesky’s large conference room on the 34th floor, the room was already filled with other Boesky employees. There didn’t seem to be any sense of impending doom. On the contrary, Davidoff, the head trader and a member of Boesky’s executive committee, was joking and confidently predicting, “We’re going to get an extra bonus. I know it, we’ve had a great year, plus we’ve got all the new Drexel money.”

  “Are you out of your fucking mind?” Mooradian interjected. Several people laughed.

  At 3:20, the doors opened and Boesky appeared, looking tired and drawn, followed by a procession of 10 lawyers: Pitt, Theodore Levine, and the defense team from Fried, Frank and Wilmer, Cutler, as well as lawyers from two Boston firms representing Boesky’s partnership investors. Wekili and Fraidin, the two people closest to Boesky, were absent. They had already been briefed, as had Boesky’s wife, Seema, and his children. The family was in shock.

  The minute they saw all the lawyers, Boesky’s employees knew something was terribly wrong. Then Boesky began to read from a prepared statement. Boesky said it had been “very difficult” for him the past few weeks, when he had been unable to discuss anything with anyone and had avoided contact with them. He cautioned them that what he was about to say should not leave the room until after 4 P.M. and that they wouldn’t be allowed to make any phone calls until 4:15 P.M. He paused, took a deep breath, then continued reading. It would be announced at 4 P.M., he said, that he had reached a settlement with the SEC in which he would pay $100 million, and that he had agreed to plead guilty to one count of conspiracy to commit securities fraud.

  The government “justifiably holds me and not my business associates or business entities responsible for my actions,” Boesky continued. “I deeply regret my past mistakes, and know that I alone must bear the consequences of those actions. My life will be forever changed, but I hope that something positive will ultimately come out of this situation. I know that in the wake of today’s events, many will call for reform. If my mistakes launch a process of reexamination of the rules and practices of our financial marketplace, then perhaps some good will result,” he concluded. He looked up at his stunned employees, then offered to take questions.

  The room was silent. People were too numb to ask any questions. Finally someone asked if the firm was closing, and when. Boesky assured them he would have 18 months to wind up the operations, so there’d be no immediate dislocation. He offered to do what he could to help people find jobs at other firms. Finally, Johnny Ray, Boesky’s longtime chauffeur, stood up and said, “Let’s all go down with the ship!”

  That broke the tension. People laughed, a few cried, and everyone lined up to shake Boesky’s hand, or hug him, or just wish him well. Many had often thought of him as a tyrant, and he’d just thrown a wrench into all of their lives; but suddenly he seemed so frail, dependent on so many lawyers. He already seemed a shadow of the fierce trader they’d known. For most of the employees, it was hard to feel anything but pity.

  The stunning news came across the ticker at 4:28 P.M. SEC CHARGES IVAN BOESKY WITH INSIDER TRADING, the headline read. “The Securities and Exchange Commission charged Wall Street arbitrageur Ivan Boesky with trading on inside information provided by Dennis Levine,” the ticker copy began, and quickly reached the news that rocked Wall Street the most: “Boesky has agreed to cooperate with the SEC in its widening investigation of insider trading on Wall Street, SEC officials said. In addition, the United States Attorney in New York said Boesky entered into a criminal plea agreement in which he will plead guilty to one federal felony charge.

  �
��The U.S. Attorney’s office, which declined to identify the specific charge, said Boesky is cooperating in its continuing criminal investigation arising from the Dennis B. Levine insider trading case.”

  Almost everybody who counted had talked to Boesky at one time or another. Paranoia swept Wall Street.

  Milken’s traders and salesmen in Beverly Hills were winding down after a busy week; Milken was still working at the trading desk when Terren Peizer shouted, “Oh my God!” Everyone looked up, saw Peizer riveted by the ticker, and hurried to see what was on the tape.

  Milken got the news on his Quotron screen. He said nothing. He stayed at his desk and answered the phone. His colleagues watched closely for clues to his reaction. Milken seemed contemplative, but otherwise acted as though nothing had happened. Everyone was amazed at his self-control.

  After three or four phone calls, Milken jumped up and walked quickly into his brother Lowell’s office. He shut the door and didn’t emerge for more than an hour.

  Later, Fred Joseph called. He’d learned from Drexel’s general counsel that afternoon that subpoenas were out concerning Milken and Drexel. They were subpoenas from the Justice Department, meaning a criminal investigation was underway.

  “There’s nothing to worry about,” Milken said firmly, sounding unconcerned. Joseph relaxed. It was inconceivable that Milken had done anything wrong. He had the best business in the country. He’d been investigated before and everything had always turned out fine. This would, too. Joseph left to attend a dinner for top Drexel officials and their wives.

  That weekend, Milken called Jim Dahl at home and asked him to come to the office. Dahl drove in and settled in at his desk, waiting impatiently for Milken to explain what he wanted. But Milken was elsewhere in the office, talking with other people. Finally Dahl cornered him.