Posted on 08/14/2017 4:19:55 PM PDT by nickcarraway
It was the 17th of September 1986, and the curtain was now coming down on the greed-is-good Wall Street boom.
On the surface, nothing seemed much different in the high-flying world of leveraged buyouts, corporate raiders, junk bonds and suspendered yuppies chasing dizzying amounts of money.
But behind the scenes, one of the icons of this era was cutting a deal with federal agents and an ambitious U.S. Attorney named Rudolph Giuliani in the biggest insider-trading investigation in history.
Ivan Boesky, the mega-rich and super-arrogant 49-year-old king of the arbitragers, was agreeing to sing like a platinum canary to get off with a relatively light sentence for his role in the scandal.
Boesky's cooperation gave investigators the weapons to crush a Wall St. conspiracy that involved illegal information-swapping among titans of finance, manipulation of huge corporate takeovers and suitcases full of cash being passed on street corners. It was the biggest scandal on The Street since 1938, when Richard Whitney, the aristocratic president of the New York Stock Exchange, had gone to Sing Sing for grand larceny, wearing a three piece suit.
By the time all the gold dust settled, Boesky would agree to pay a $100 million fine and spend 22 months in jail. The great junk bond firm Drexel Burnham Lambert would be bankrupt. And Drexel's junk-bond guru, Michael Milken, would be behind bars.
But it was not just the mega-rich that would be hurt as the roaring 1980s came to an end. The wild bull stock market that had served as a backdrop to the scandal would also fall victim to greed and overreach.
Thirteen months after Boesky's plea-bargain deal, the stock market crashed even more catastrophically than it had done in 1929. In a single day, the Dow Jones industrial average plummeted 508 points, or 22% of its value.
The crash, together with the insider trading scandal, ended an era of decadence and opulence that New York had not seen since the Roaring Twenties.
With Ronald Reagan in the White House preaching deregulation and supply-side economics, corporate America went on an orgy of spending and growth through the 1980s, with Wall St. as its caterer.
Corporate raiders like T. Boone Pickens and Carl Icahn bought huge companies, saddled them with immense amounts of debt and then fired thousands of workers so that they could afford to pay it back. Wall St. loved it, but hundreds of company towns across the country suffered mightily from layoffs.
In New York, fortunes were made as the stock market roared and salaries and bonuses skyrocketed in the city's brokerage houses, investment banks and white shoe law firms. Almost overnight, it seemed, the city was packed with business school graduates in their 20s and 30s, spending lavishly on cocaine, clubs and condos.
And Ivan Boesky was their overlord, a man who made hundreds of millions of dollars in a business known as risk arbitrage, which involves trading on the huge stock swings that result from corporate takeovers.
Boesky's line of work depended on information. His Fifth Ave. offices had 300 telephone lines, his limousine three. He worked them all incessantly, digging up data on mergers and acquisitions, and he always seemed to be one step ahead of the market.
The son of a Russian immigrant, Boesky lived on a 200-acre estate in Westchester County with his heiress wife Seema Silberstein. He spent money lavishly. At the glitzy Cafe des Artistes one day, he decided on a whim to order every entree on the menu just to taste each one.
Boesky also attained distinction for a 1985 speech in which he unashamedly provided the philosophical justification for the Gimme Decade. "Greed is all right," he said. "Greed is healthy. You can be greedy and still feel good about yourself."
Thousands followed his advice, including a 33-year-old investment banker named Dennis Levine, who put federal investigators on the trail to Boesky and Milken after he was arrested for insider trading in May 1986.
The first of his Queens family to attend college, Levine seemed the embodiment of the American dream. With brains and drive, he worked his way up to a high-level job in the mergers and acquisitions department at Drexel Burnham. His compensation was over $1 million a year.
But that wasn't enough in the Gimme Decade. Levine opened offshore bank accounts from which he began playing the market with inside information he got from his job and Wall St. contacts. He would learn of mergers, acquisitions, buyouts and other transactions before anybody else and make millions by buying and selling stock in these companies before the news hit.
It seemed like a perfect scheme. Yet it suffered a fatal flaw: Levine forgot that others were just as venal as he was.
His world began to unravel in 1985, when an anonymous tipster notified Merrill Lynch's headquarters that two of its executives in Caracas were getting rich in an unusual way. The two had recognized that one of their customers, whom they knew only by a secret bank account number, always seemed to pick the right stocks to buy. They simply mimicked all of his trades.
Merrill Lynch called in the Securities and Exchange Commission. After a few months they were able to determine who owned the account: Levine.
Confronted by the evidence investigators had against him, Levine agreed to cooperate. He gave up enough evidence for them to arrest four young lawyers and investment bankers working for the top firms on The Street. And he also helped them begin to make a case against Ivan Boesky.
Each arrest shook Wall St.'s conviction that the go-go years would last forever. On Nov. 14, 1986, the day the government announced Boesky's plea-bargain deal, takeover stocks were clobbered.
Ironically, Boesky's own stock portfolio was not hurt by that plunge. Under the terms of the deal, he had been permitted to sell most of his holdings.
With the sanction of the federal government, Boesky conducted his last insider trade. He sold stock on the basis of inside information that he was about to plead guilty to insider trading.
First published on Nov. 23, 1998 as part of the "Big Town" series on old New York. Find more stories about the city's epic history here.
I worked for EF Hutton. One day they talked and the Feds listened. That was the end of my career on Wall Street.
ping
Stock market is going much higher! My 7 year bank CD yielding 2.7% for last 7 years matured and the best rate they can give me is rollover into another 7 years CD at 0.3%. Yeah sure, tie up my money at 0.3% rate for 7 long years? While real cost of living is rising for me at 5-7%? Nope, the money will go into more stocks, the only game in town.
I lived at Windansea beach in La Jolla in the late 80s, Boesky was there in his speedos, not a pretty site.
He still lives somewhere in La Jolla today.
” My 7 year bank CD yielding 2.7% for last 7 years matured and the best rate they can give me is rollover into another 7 years CD at 0.3%.”
You misunderstood. A 7 year CD is going for 2.3%!
Money has been free for years. Children growing up today don’t have any concept of “interest”. “Interest on interest” as a financial strategy and reality will cease to exist. Money market accounts are now more of a liability than an asset.
For later
Well, the Bank of America agent on the phone said 0.3% is all they are offering for new 7 year CD.
But you are right, OTHER banks are offering higher rates.
Best 5-year CD rates
Institution APY Minimum deposit
Utah First Credit Union 2.4% $500
Popular Direct 2.35% $10,000
Synchrony Bank 2.35% $25,000
First Internet Bank of Indiana 2.27% $1,000
Ally Bank 2.25% $0
You are so right. Most of my money came from 12-14% dividends on Utility stocks, which I began to accrue during Carter’s last year in office, when interest rates and inflation were sky high. Then after 3rd year of Reagan, inflation was way down, and all those utility stocks had more than doubled.
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