page 43 In a short sale, an investor agrees to sell a given stock at a given price on a designated future date. The difference between the price agreed upon and the market price on the designated date is profit (or loss) to the investor. The SEC requires that short sellers own or have guaranteed access to the stock they have promised to sell. The most common practice is for investors to make a short sale of stocks they don’t actually own; instead they “borrow” the stocks from a third party, who guarantees that those stocks will be available for the investor to buy on the day of the transaction. The investor is betting that the price will drop, so that the borrowed stock will cost less than the price agreed upon in the short sale.
pages 48–52 Milken’s background is discussed at length in U.S. v. Michael R. Milken, SS 89-CR-41, Sentencing Memorandum of Michael R. Milken (hereafter cited as “Government’s Milken memo”), pp. 3–28. The backgrounds of Burnham, Milken, Joseph, and Drexel are described in Bruck, The Predators’ Ball, pp. 23–40.
page 53 W. Braddock Hickman, Corporate Bond Quality and Investor Experience (Princeton University Press, 1958). The book sold just 934 copies.
page 56 Black’s father, Eli, committed suicide in 1975. The scandal received widespread publicity, including the front-page story: Mary Bralove, “Giving Up,” Wall Street Journal, Feb. 14, 1975.
page 63 Milken’s salary was disclosed in U.S. v. Michael R. Milken, SS 89-CR-41, Government’s Sentencing Memorandum (“Government’s Milken memo,”) p. 20, n. 8.
page 64 Robert Ludlum, The Matarese Circle, 1980 Bantam edition, p. 446.
page 66 According to his attorney, Lowell Milken attended to his brother and called an ambulance for him.
Chapter 2
pages 68–69 The backgrounds of Dennis Levine and Robert Wilkis are discussed at length in U.S. v. Dennis B. Levine, 86-CR-519, Sentencing Memorandum on Behalf of Dennis B. Levine, 1989 (henceforth cited as “Levine sentencing memo”), pp. 1–10.
page 70 Levine’s father is discussed in U.S. v. Dennis B. Levine, First and Second Reports of the Receiver (hereafter cited as “Levine receiver’s reports”).
page 72 Levine’s and Wilkis’s accounts of how they began insider trading are sharply at odds. Levine claims that Wilkis “opened” his eyes “to the concept of insider trading” when he intercepted a coded telex at Citibank in 1978 and urged Levine to buy stock in a takeover target. He maintains that Wilkis sought inside information from him while he was in Paris and that Wilkis opened a Swiss account on a visit to Paris in the spring of 1979 (Levine sentencing memo, pp. 12–14). Wilkis denies this account. Wilkis disclosed all his banking transactions as part of his plea bargain; there was no record of any Swiss account opened in Paris. For these and other reasons, the text reflects Wilkis’s version of events.
page 74 Hill’s relationship with Levine is summarized in SEC v. Dennis Levine, 86 Civ. 3726, Declaration of J. Tomilson Hill III, 1986.
page 77 Though Levine often boasted to Wilkis that “everyone” was insider trading, including Hill, there isn’t any evidence to support his claims. Significantly, Levine didn’t implicate anyone other than his immediate conspirators when he had every reason to do so in order to enhance the value of his cooperation.
page 79 The code names are discussed in Frantz, Levine & Co., p. 53.
page 81 The meeting between Reich and Levine is described in Steven Brill, “Death of a Career,” American Lawyer, December 1986.
page 82 Reich’s background is described in Sentencing Memorandum on Behalf of Ilan K. Reich (hereafter cited as “Reich sentencing memo”), pp. 4–12.
page 85 Copies of Levine’s original Bank Leu documents were produced by the SEC in response to an FOIA request.
page 86 Details of Levine’s trading in Jefferson National and other stocks referred to on subsequent pages, as well as calculations of his profits and losses, were disclosed by the SEC in appendices to its filings in SEC v. Dennis Levine A/K/A Mr. Diamond et al., the SEC’s civil injunctive action, and supporting motions and papers, pp. 5–21. A chart showing the trading and profits also appeared in The Wall Street Journal, May 16, 1986.
page 89 Levine’s American Express receipts while at Smith Barney were produced to the SEC, which disclosed them in its FOIA response.
page 92 The charges against Florentino received widespread press coverage; e.g., The Wall Street Journal, Aug. 17, 1983.
page 93 Fraysse recorded his meetings with “Mr. Diamond” in memos to the bank’s files, which were produced to the SEC and disclosed with the FOIA material.
Chapter 3
page 95 Mulheren described his first meeting with Boesky at the Café des Artistes in U.S. v. John A. Mulheren, Jr., 89-CR-452, transcripts of proceedings, testimony of John Mulheren (hereafter cited as “Mulheren testimony”), June 13, 1990, pp. 2471 ff.
page 95 Mulheren described his background and career in detail during his testimony in U.S. v. Mulheren.
page 97 The origins of the takeover boom in the eighties are explored in detail in Roy C. Smith, The Money Wars (New York: E.P. Dutton, 1990).
page 104 Mulheren discussed the Boesky rescue in detail in his court testimony. Quotations are from Mulheren testimony, June 13, 1990, p. 2477.
page 104 The quotations are from Mulheren testimony, p. 2478.
page 107 The tennis outing and Boesky’s arrival in a Rolls Royce were first described in James B. Stewart and Daniel Hertzberg, “Unhappy Ending,” Wall Street Journal, Feb. 17, 1987.
pages 110–111 Boesky described the beginnings of his insider-trading scheme with Siegel in U.S. v. Mulheren, transcripts of proceedings, testimony of Ivan Boesky (hereafter cited as “Boesky testimony”), May 22, 1990, p. 418. Siegel also described their relationship in numerous government debriefings. Their accounts don’t differ in any material respect.
page 111 Siegel’s starring role in the Martin Marietta/Bendix battle was described in detail in Hope Lampert, Till Death Do Us Part: Bendix vs. Marietta.
page 113 Boesky’s profits from Siegel’s information were disclosed in SEC v. Martin A. Siegel, Complaint for Injunctive and Other Equitable Relief (hereafter cited as “Siegel complaint”), pp. 5–14.
pages 113–114 Most details of the cash payments have never before been revealed. They were first mentioned in Siegel complaint, p. 6, and further described in Stewart and Hertzberg, “Unhappy Ending.”
Chapter 4
page 116 Boesky’s ownership of the Beverly Hills Hotel is discussed in Bruck, “My Master Is My Purse.”
page 116 The history of the Beverly Hills Hotel is described in Laura Landro, “Show Business Deals Can Go Swimmingly If the Setting Is Right,” Wall Street Journal, Apr. 15, 1985.
page 117 A “Chinese wall” in an investment banking firm generally refers to an information barrier between investment bankers and traders, including arbitrageurs. It is intended to prevent a firm’s traders from acting on confidential information entrusted by clients to the investment bankers.
page 119 The background and career of Posner are reported in Michael Allen, “Troubled Raider,” Wall Street Journal, July 14, 1987. Posner’s relationship to Drexel is also discussed in Bruck, Predators’ Ball, pp. 119–125.
page 120 Ronald Perelman was head of MacAndrews & Forbes and launched a hostile takeover of Revlon. Nelson Peltz, head of Triangle Industries, acquired National Can and then bought American Can from Primerica. He sold American National Can to Pechiney, the French packaging company. Gerald Tsai was chairman of Primerica, which he reshaped into a financial services concern which owns Smith Barney, the brokerage firm. Irwin Jacobs is a corporate raider based in Minneapolis. The Hafts became corporate raiders, launching an unsuccessful bid for Safeway Stores. The Pritzker family owns Hyatt Hotels Corporation and invests in numerous other ventures.
page 122 Carr has denied being part of any scheme to free Posner from the standstill agreement.
page 122 While based on independent reporting, the text’s account of the Fischbach transaction
closely parallels that set forth in Government’s Milken memo, pp. 30–37 (redacted). Carr denied being part of any Milken-led scheme involving Fischbach.
page 126 Although Milken pleaded guilty to a felony count of conspiracy for his role in Fischbach, he disputes some of the key facts that were alleged by the government and that appear in the text based on independent reporting. Milken insists that he didn’t instruct Boesky to buy Fischbach stock or guarantee him against loss at the time of Boesky’s original purchases of Fischbach. Thus, Milken argues that Boesky’s actions in Fischbach weren’t part of a broader Milken-led scheme to free Posner from the standstill agreement (Milken’s sentencing memo, pp. 80–82). This version assumes that the timing of Boesky’s purchases vis-à-vis the standstill was sheer coincidence and offers no motive for Milken’s having agreed to protect Boesky from loss, as Milken concedes he did in at least some Fischbach instances. For these and other reasons, the text largely reflects Boesky’s version of events.
page 128 The Otter Creek trading in National Can was first disclosed in James B. Stewart, “Dubious Deals,” Wall Street Journal, July 15, 1988. The trading records were disclosed by the House Subcommittee on Oversight and Investigation. A Milken spokesperson denied any impropriety, arguing that Milken didn’t know that National Can was contemplating a buyout prior to the public announcement (even though Drexel was handling the buyout financing and met with National Can officials).
page 129 The quotations are from the New York Stock Exchange’s confidential report on its investigation provided to the House Oversight Subcommittee.
page 131 Engel denies Joseph’s allegations, and has never been charged with any wrongdoing in connection with the incident.
page 131 Engel’s dismissal was reported in Bruck, The Predators’ Ball, pp. 337–339.
page 136 The 1985 Predators’ Ball was the subject of Anthony Bianco, “The Growing Respectability of the Junk Heap,” Business Week, Apr. 22, 1985.
page 138 Bruck reported the presence of prostitutes at the 1985 Predators’ Ball, quoting participants such as Fred Sullivan, chairman of Kidde Inc. (Bruck, The Predators’ Ball, p. 15). Joseph and Engel deny the assertion.
page 138 The quotation is from Peter Dworkin, “The Inside Story on the High Tech of Finance,” San Francisco Chronicle, Apr. 4, 1985. The full quotation is “‘You have to be pretty impressed by the aggressiveness and acuity of these fellows,’ said Tully Friedman, a partner in the San Francisco investment firm of Hellman & Friedman. ‘What you don’t know is if you have a watershed in American business or a South Sea bubble,’ he said, referring to one famous speculative binge.”
Chapter 5
page 139 Levine’s receipt from the River Cafe was included in the expense receipts disclosed by the SEC.
pages 141–142 Ken Auletta, Greed and Glory on Wall Street: The Fall of the House of Lehman (New York: Random House, 1986).
page 144 Reich’s effort to distance himself from Levine, and his re-en-snarement, are described in Reich sentencing memo, pp. 18–21.
page 149 Cecola ultimately pleaded guilty to two counts of tax evasion, and has denied engaging in any insider trading. He was dismissed from Harvard Business School.
page 151 The quotations are from In the Matter of Transactions in the Securities of Textron, Inc., File No. HO-1677, transcript of deposition of Dennis B. Levine, Nov. 14, 1984, pp. 15–17.
page 153 Levine’s spending is described in Levine receiver’s reports.
page 154 A copy of Hadley Lockwood’s “Candidate Presentation” for Levine, marked “confidential,” was produced to the SEC and disclosed as part of its FOIA response.
page 155 The terms of Levine’s employment at Drexel are set out in an internal Drexel memorandum dated Jan. 18, 1985, from Herbert Bachelor to Tom Lee, and in a letter dated Jan. 9, 1985, from David Kay to Levine, both produced by the SEC.
page 155 The purchase of the Ferrari is described in Levine receiver’s reports.
page 157 In May 1990, Levine said he first met Boesky at the 1985 Predators’ Ball and they began speaking on the phone afterward (Dennis B. Levine, “The Inside Story of an Inside Trader,” Fortune, May 21, 1990). Earlier, he claimed that Boesky first called him seeking information in Feb. 1985, “the first of countless telephone calls from Ivan Boesky” (Levine sentencing memo, p. 24). The text reflects Boesky’s version, suggesting that Levine called Boesky in Feb. 1985, which is consistent with Levine’s long-standing desire to cultivate Boesky, rather than vice versa.
page 157 Details of Boesky’s trading in ANR and in other transactions discussed here were taken from his voluminous 13-D filings, obtained from the SEC.
page 157 Boesky’s earnings from Levine’s tips were disclosed in the SEC’s complaint in SEC v. Ivan F. Boesky et al.
page 159 The terms of the Boesky/Levine arrangement are also disclosed in the SEC’s complaint in SEC v. Ivan F. Boesky et al.
page 159 There is no evidence to support Levine’s claims about Gleacher or Wasserstein, and neither has been charged with any wrongdoing. See note to p. 77.
page 160 Biographical details of Sir James Goldsmith are from James B. Stewart and Phillip Revzin, “Nimble Financier,” Wall Street Journal, Nov. 21, 1986.
page 161 The meeting at Sir James’s townhouse was described in the SEC’s deposition of Roland Franklin. The luncheon is also described in Frantz, Levine & Co., pp. 134–136.
Chapter 6
page 164 The Natomas transaction is described in Siegel complaint, pp. 7–8.
page 165 The Texaco/Pennzoil/Getty battle, including Siegel’s role, is the subject of Thomas Petzinger, Oil and Honor (New York: Putnam, 1988).
page 167 Boesky’s and Siegel’s accounts of the amount of cash delivered differ. Boesky was apparently unaware of the “skimming”; the text reflects Siegel’s sworn statements to government investigators.
page 168 Boesky’s success in the Gulf deal is described in detail in Bruck, “My Master Is My Purse.”
page 170 On the Carnation deal: Siegel complaint, pp. 6–8.
page 170 The SEC termed Carnation’s comments denying knowledge of any reason for its stock activity “materially false and misleading” and issued new guidelines for company disclosures. Wall Street Journal, July 9, 1985.
page 173 The article that so troubled Siegel is Gwen Kinkead, “Ivan Boesky, Money Machine,” Fortune, Aug. 6, 1984.
page 174 Biographical material on Robert Freeman is from Richard B. Stolley, “The Ordeal of Bob Freeman,” Fortune, May 25, 1987.
page 176 The article referred to is Bruck, “My Master Is My Purse.”
page 178 The quotation “Don’t you love me anymore?” was first reported in Stewart and Hertzberg, “Unhappy Ending.”
page 178 Freeman has denied engaging in any criminal activity other than the one instance of insider trading with Siegel to which he pleaded guilty. The government, in a presentencing memorandum, argued that Freeman had engaged in numerous instances, presumably including many of the transactions described in the text of this book. It also alleged additional criminal activity that Freeman engaged in with others besides Siegel. At Freeman’s request, this document was sealed by the sentencing judge, as was Freeman’s reply memorandum. Thus, Freeman’s defense, if any, to the specific incidents described in the text isn’t known. The Wall Street Journal moved to obtain both the government’s memo and Freeman’s reply; the motion was denied by Judge Leval. The decision was appealed, and, in early 1992, the appeal was denied.
page 179 The Brant-Winans scandal is the subject of R. Foster Winans, Trading Secrets: Seduction and Scandal, at The Wall Street Journal (New York: St. Martin’s Press, 1986).
page 179 Krantz’s role in the Winans scandal, and his performance as a witness in the Winans trial, are the subject of Stephen J. Adler and Donald Baer, “Afraid to Blow the Whistle,” American Lawyer, June 1985. The article concluded that Krantz “ended up as an ineffective cop who let the bad guys run wild on his beat.”
; page 180 Wigton’s background is described in Steve Swartz and James B. Stewart, “Justice Delayed,” Wall Street Journal, Aug. 21, 1989.
page 180 The creation of the Kidder, Peabody arbitrage department and DeNunzio’s role was first disclosed in Stewart and Hertzberg, “Unhappy Ending.”
page 183 Wigton denied being privy to the phone call about Continental.
page 184 Details and timing of the bidding for Continental were obtained through Dow Jones News Retrieval.
page 186 Details of trading by Freeman and Goldman in this book were obtained from copies of actual trading records obtained by the author. Some of these trades were first disclosed in James B. Stewart and Daniel Hertzberg, “Suspicious Trading,” Wall Street Journal, Feb. 12, 1988. Freeman and his lawyers declined comment on the trading. Freeman’s lawyers, after this book was published, again maintained Freeman’s innocence of all charges except for the Beatrice incident. They called Siegel a con artist and noted that Freeman has denied Siegel’s allegations under oath and has passed a lie detector test. They further detailed Freeman’s defenses to Siegel’s charges in a 29-page letter, leaving the legend “Confidential—Not for Publication.” As of this writing, they have continued to refuse to disclose Freeman’s reply memorandum to the government’s presentencing memorandum.
page 194 The backgrounds of Coniston Partners, Princeton-Newport, and James Regan are described in James B. Stewart and Daniel Hertzberg, “Insider Focus,” Wall Street Journal, Apr. 6, 1988.
page 195 See note to p. 186.
page 197 Selling short is the sale of a security or commodity futures contract that is not owned by the seller, a technique used to take advantage of an anticipated decline in the price or to protect a profit in a long position. An investor borrows stock certificates for delivery at the time of short sale. If the seller can buy that stock later at a lower price, a profit results; if the price rises, however, a loss results.
Selling a call is the short sale of a call option. A call option is the right to buy 100 shares of a particular stock at a predetermined price before a preset deadline, in exchange for a premium. Purchase of a call represents a bet that a stock price will rise; selling a call is a bet that it will fall. Buying a put achieves the same strategy.
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