THE BOUNDLESS GREED OF BOESKY

Nicholas von Hoffman examines

how Ivan Boesky made so much money, and then lost some of it

New York ON MANHATTAN'S Upper West Side workmen will soon be prising the bronze letters off what is suddenly no longer the Ivan F. and Seema Boesky Family Library of the Jewish Theological Seminary. Har- vard University's School of Public Health has received Mr Boesky's resignation from its visiting committee. So too have the American Ballet Theatre and Metropolitan Museum of Art, where Wall Street's 'Ivan the Terrible' held honorific positions. Also deleted from his curriculum vitae is Mr Boesky's position as special adviser on Jewish affairs to the Republican National Committee. Whether he will continue to donate tens of thousands of dollars to the election campaigns of Republican candi- dates remains to be seen, both because no one knows how much money the fallen financier will have left if and when his troubles end, and also because his zeal for the grand old party may have dried up in as much as it was a fellow Republican, Securities and Exchange Commission chairman John Shadd, who turned the great arbitrageur into a common felon and a stool pigeon. The career which ended a few weeks ago with Mr Boesky's pleading guilty to the criminal violation of the securities law was a short one, but how meteoric! In the ten years since he set up in the arbitrage business as an independent operator, the man got himself a fortune so large he was able to pay off the $100 million in fines and penalties assessed against him by the gov- ernment more or less by sitting down and writing out a cheque for the full amount. It is estimated that this greed-crazed stock plunger was worth a quarter of a billion dollars before he was brought low in a drama in which the government was the efficient cause, but in which the final cause was his own love of money, a passion that he himself once called 'a sickness I have in the face of which I am helpless'.

The arbritrage business as it is now practised on Wall Street is something of a Boesky invention. Before he came along it was small potatoes — buying the stocks of companies which some other company or individual had announced the intention of buying. Since the price of the target company's stock immediately rises upon such news, there was often a small, favour- able difference between what the arbit- rageur paid for the target company's stock and what the company's purchaser finally had to pay in order to gain a controlling interest.

That small difference, the arbitrage, was the arbitrageur's profit. Thus, prior, to the coming of Ivan the Pig, as some of his admirers on the Street called Boesky, it was essentially a low-risk, low-profit mar- gin game of such minor importance that few business people not in the securities industry could have told you what an arbitrageur did.

Boesky changed that. Boesky began buying the stocks of companies which were not yet known to be takeover targets. When the news came through that these firms were being pursued by purchasers the rise in the price of their stocks was drama- tic. Of course, the risk was that Boesky had bet wrong, that nobody was coming along to bid up the price, something which, in fact, occasionally happened, but, overall, Mr B. soon had himself a reputation for uncanny sagacity. By long hours of study, intuitive financial genius and a nose that picked up early scents, it was said that Mr Boesky could guess what was the next company that would see its stock suddenly leap 20, 30, 40 per cent in value.

It now turns out he was doing less guessing and using less intuition than he was spying on and buying information from the employees of the financial institutions who were helping to arrange these sales and who had, therefore, advance, secret, inside information. Under American law it is a crime to profit by that information. Mr Boesky has confessed to agreeing to pay Dennis Levine of Drexel Burnham Lam- bert, a brokerage house involved in many of the biggest deals of the decade, a five per cent commission on any information he could turn a dishonest dollar with.

From here on the story turns murky. Mr Boesky is a crook, but it would be a mistake to think he was unique or even rare in making millions by using illegal information. Many detached observers be- lieve the practice is pandemic. H. Ross Perot, for instance, remembers when he was bargaining to sell his $2 billion EDS computer company to General Motors: `We had a good meeting and the stock went up, we had a bad meeting and the stock went down. I finally called the guys in and I said, "Now if this happens any more, I'm going to find out who did it. We're going to get this straightened out because this is rotten, absolutely rotten." And interestingly enough, it stopped.'

Stockbrokers and others in the securities industry go up the wall when it's asserted that the suckers get to play a cleaner game in Las Vegas than they do on Wall Street. As proof that they're running an honest casino, they argue that a very few of their croupiers get caught rigging a game and that the industry is closely policed by the government, which has computers prog- rammed to detect any fishy business. But it wasn't a federal government computer that caught Levine.

Mr Levine was exposed in an anony- mous letter to the federal securities cops from Caracas and, they, in time-honoured fashion, told the now contrite Mr Levine he would get whacked but good unless he turned in somebody bigger and better. That got the Feds Boesky, who in the same spirit of civic uplift wore a wire to record his illegal doings with as yet unnamed others. Rumour has it that he even let the G-men install hidden television cameras in his office to record other businessmen executing their crimes and committing their conspiracies. It's those others and who they may be which is causing const- ernation on the lower end of Manhattan. Evidently Boesky has put in play, to use the stock market idiom, some other names which are as big or even bigger than his.

But all these men and their doings must be seen in their habitat, which is a perfer- vid world of quick money-making that most people don't know exists and would not believe if it were described to them. Where they play the game of mergers, acquisitions and arbitrage, young men, juniors under the age of 30, are hauling in over a million bucks a year. A senior officer at Drexel Burnham Lambert, who has put together the so-called junk bond financing which has made a number of the biggest mergers possible, is thought to be making something in the neighbourhood of $80 million a year. His arrest is every moment expected, but he has already consulted several of the nation's leading criminal lawyers. He can afford it.

Some outsiders, particularly Democrats in Congress, are looking at this ever- expanding scandal and proposing new leg- islation designed to damp down or stamp out the kind of craziness which allows men to make regal fortunes without growing one ear of corn, making one house, invent- ing one widget or performing a single service which their fellow countrymen might recognise as having any social or economic value. Others, and they are at least vocally in the minority, point out that this buying and selling of companies, some- thing which the activities of arbitrageurs like Ivan Boesky make easier, does have an important use.

In the jargon, 'it redeploys under- utilised assets,' meaning that in the process of buying a company, then cracking it up and re-selling its parts piece by piece, costs are cut, superfluous workers are dis- charged, unprofitable lines are discon- tinued, profligate practices are stopped, unneeded echelons of supervision are dropped, management fat is pared away, sludge-bound corporate officers are fired and replaced with men and women who know how to run the company. A powerful case can be made for this point of view. Viewed from the late 1980s, America's business heroes of the previous three de- cades, the men who built the great con- glomerates, now look like a bunch of operators who traded the future for quick, flashy statistics. Neither the men who put together these structures nor their succes- sors have known how to run them success- fully.

Another class of American corporation is made up of sleepy operations governed by self-perpetuating boards controlled by chairmen whose concern for shareholders, customers and employees is never allowed to disturb their overpaid, somnambulant tenure in the chief executive officer's suite. Such firms also are crying out to be sold or shaken out and turned upside down.

Although high wages, unfair Asian com- petition, the price of the dollar and a dozen other factors external to the company are still blamed for poor American perform- ance, students of business increasingly point the finger at cretinously incompetent managements. The one sure way of rapid and timely changes in how a company is run is new ownership and that is what the corporate raiders and takeover artists with their helpers from the arbitrage shops and the brokerage boiler-rooms often, although by no means always, bring about.

But they do it ugly. When they're finished, an inert company, floating corpse-like in the water, may have ex- changed a paralysed management for a paralysing debt. Sometimes the takeover artist is the company's own management, out not to restructure the company but to fleece the stockholders. In any event the attempts, successful or not, to buy. giant companies have come so hot and so heavY the past few years no one can say with confidence whether the Ivan Boeskys have helped or injured the economy. What can be said is that there is a small group of men, of whom Boesky was one, who make multiples of what rock stars and athletes are paid and who do it in a matter of hours or days. They do it by telephone calls and by manipulating integers on a computer terminal, seldom knowing what the green characters on the screen stand for in flesh and blood organisation, pro- ductivity or technology. Boesky himself is a man of the narrowest cultivation, an unsuccessful college student who, after some years of trying for some kind of sheepskin from one sort of diploma mill or another, got himself a law degree from a down-market law school.

In the American press Boesky is repe- atedly compared to Jay Gatsby, the man in the F. Scott Fitzgerald novel who strove to overcome his plebeian origins by the profli- gate expenditure of money. But many of the men who will be going to jail and disgrace with Ivan Boesky have fine pedig- rees and attended the best schools. Much good it did them when it came to the luminescent green numbers on the compu- ter terminals. They were as ignorant of what these symbols stood for as Boesky and as caught up in pathological pursuit of money, the ancient lust for gold. That is the key to the law-breaking, to the whole scandal. These men have shown there is no such thing as wealth beyond the dreams of avarice. For Ivan Boesky money is concrete and specific, it's the other things in life which are abstract, as he made clear enough while describing how vivid $500 million dollars was to him: 'Imagine it in one-dollar bills, or better yet in a pile of silver dollars. I wonder how tall that would be. . . It would be like Jacob's ladder, wouldn't it? A Jacob's ladder of silver dollars. Imagine what an aphrodisiac ex- perience, climbing to the top of such a ladder.'

Weil, whatever feels good.