YOU ARE HERE: LAT HomeCollections

Jefferies Orders Internal Probe of Its Trading : L.A. Brokerage Confirms That Firm and Its Chief Have Received Subpoenas

November 21, 1986|MICHAEL A. HILTZIK | Times Staff Writer

NEW YORK — Jefferies Group, a Los Angeles stock brokerage that has become a focus of investigators probing stock speculator Ivan F. Boesky's illegal trading, said Thursday that it has assigned its outside law firm to "verify" that neither it nor its chief executive traded on inside information.

In a written statement, Boyd L. Jefferies, the head of Jefferies Group, confirmed that he and the firm have received subpoenas from the Securities and Exchange Commission and federal prosecutors in Manhattan.

The agencies are pursuing leads provided by Boesky, who, in a settlement made public last Friday, agreed to pay $100 million in penalties for having made some $50 million in illegal profits from trading on inside information about corporate mergers.

Boesky also agreed to plead guilty to a federal felony charge and to submit to a permanent bar from the U.S. securities industry. He may continue to trade as a private investor.

Worked Closely With 'Raiders'

Jefferies Group has become a major player in the merger and acquisition wave of the last few years by specializing in assembling and trading huge blocks of stock without resorting to formal stock exchanges or the over-the-counter market. Jefferies has worked closely with so-called raiders, who often seek such blocks, and with takeover speculators such as Boesky, from whom the large blocks can be assembled.

One former Jefferies executive said Thursday that Jefferies was not personally close to Boesky as of last January, when the executive left the firm.

Ronald Alghini, formerly the president of Jefferies & Co., a key subsidiary, noted that as one of the largest stock traders on Wall Street, Boesky was a major Jefferies customer. But up to the end of 1985, when Alghini left the firm, there was "categorically no investment by the firm in Boesky's partnerships and, to the best of my knowledge, no investment by Boyd." He said personal investments by the firm's executives had to be approved by its board, of which he was a member.

In his statement, Jefferies said: "I have never traded on inside information. I don't pass on inside information. Jefferies & Co. does not trade on inside information or pass on inside information. We are confident that the SEC's investigation will confirm this."

The company asked its outside law firm, Morgan, Lewis & Bockius, to "investigate this matter in order to verify that there has been no insider trading in connection with these matters."

Jefferies' action came on a day that a private investor filed the first of what is expected to be a flood of civil lawsuits against Boesky and those who are reported to have joined him in illicit stock trading.

Suing in federal court in Manhattan on behalf of himself and thousands of other small investors, the shareholder--Angelo Oriolo--claimed that he lost money by selling 100 shares of General Foods stock in September last year without the benefit of inside information known by Boesky. General Foods and Philip Morris announced that month that they had agreed to merge, meaning that Oriolo would presumably have received a takeover premium in his sale of General Foods stock.

Levine Also Named

Oriolo also asked for damages for investors who sold stocks in seven other companies in which the SEC contends Boesky made illegal trades.

Besides Boesky, the lawsuit names Dennis B. Levine, the former investment banker who tipped Boesky to dozens of imminent takeovers for more than a year starting in February, 1985; the investment firm of Drexel Burnham Lambert, where Levine was then employed, and four other merger professionals already charged with having provided tips to Levine.

Meanwhile, attorneys for Boesky's largest investment partnership, formed earlier this year, reported the fund's condition to representatives of its equity investors during a closed-door meeting in Manhattan.

Sources told The Times before the meeting that Boesky's lawyers and those of the fund "are on the same wavelength," agreeing that its trading activity should henceforth be aimed primarily at liquidating its $900-million portfolio rather than engaging in further speculation or arbitrage.

"They want to wind it up as speedily as possible," said one source. Although Boesky's SEC settlement allows him to remain associated with his investment firms until April, 1988, at the latest, he will probably play no role in the fund's future trading, sources said.

Liquidation of Securities

"The activity is essentially the liquidation of securities," said one source close to the fund, "and to do that you don't need a certified genius running the management."

Theodore A. Levine, one of Boesky's Washington lawyers, said after the meeting that Boesky and his own attorneys agreed that the fund's liquidation "should be dealt with in a way that protects the bondholders and the equity holders. But I'm not sure that a decision has been made on the best way to do that."

Los Angeles Times Articles