Ivan Frederick Boesky | Biography

Ivan Frederick Boesky was a U.S. investment banker whose manipulation of the securities market through insider trading led to a criminal conviction and imprisonment in the 1980s. Boesky, who had promoted speculation in stocks through the use of arbitrage, cooperated with federal prosecutors and provided the names of others involved in insider trading, including Michael Milken, another famous securities dealer.

Boesky was born on March 6, 1937, in Detroit, Michigan, the child of Russian immigrants. After graduating from the Detroit College of Law in 1964 and then clerking for a federal district court judge, Boesky joined a prominent national accounting firm in 1965. The following year he left Detroit for New York City, where he became a security analyst. By the early 1970s he had become a general partner of a securities firm yet he wanted to start his own firm. This happened in 1975 when he formed Ivan Boesky and Company.

Boesky was one of the most successful "arbitrageurs," a new type of speculator who bought stock in companies that appeared to be likely takeover targets of other corporations. Typically the stock of a company that is taken over rises substantially, generating a windfall for an arbitrageur who bought the company's stock when it was at a much lower price. Boesky profited enormously from the many corporate takeovers that occurred in the mid-1980s. By 1985 he had become famous in financial circles and had published a book,Merger Mania-Arbitrage: Wall Street's Best Kept Money-Making Secret, that extolled the opportunities in risk arbitrage and the benefits the practice gave to the market.

What the public did not know was that Boesky's fabled skills in picking the right corporate stocks were supplemented by insider information. Since the 1930s, the U.S. government has sought to prevent insider trading, where an insider of a corporation buys or sells stock while in possession of non-public information. Insider trading, if successful, allows a person to reap a large profit or avoid a steep loss, depending on the type of information. The federal Securities and Exchange Commission (SEC) issued rules that prohibit insider trading and made it a criminal offense.

In 1986 Boesky admitted to the SEC that he had illegally traded on information obtained from an employee at the securities firm of Drexel Burnham Lambert, which arranged the financing of many takeovers. He paid the SEC $100 million, half as a fine for insider trading and the rest in illicit profit repayments. Boesky also agreed to provide federal regulators and prosecutors with information about others involved in the scheme. He named Drexel employee Michael Milken as a member of an insider-trading network that had earned hundreds of millions of dollars during the 1980s. This information eventually led to Milken's conviction on insider trading charges.

Boesky did not escape with just the large fine. The SEC barred him for life from the American securities business. In addition, he was convicted of securities fraud and sentenced in 1987 to three years in prison. Boesky served two years in prison and was released in 1990.