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SEC Studies Arbitrageur's Ties to Jefferies : Subpoenas Into Fireman's Fund Offering Name Ex-Boesky Associate

March 24, 1987|MICHAEL A. HILTZIK | Times Staff Writer

NEW YORK — Salim B. (Sandy) Lewis, one of Wall Street's best-known risk arbitrageurs and a former associate of stock speculator Ivan F. Boesky, is under investigation in connection with the stock-manipulation scheme admitted to last week by Boyd L. Jefferies, sources confirmed Monday.

Lewis, 48, and his small stock trading and investment banking firm were named in government subpoenas issued last Thursday and Friday to American Express, its Shearson Lehman Bros. unit and Salomon Bros., the sources confirmed.

The subpoenas were seeking information relating to American Express' offering last March of stock in Fireman's Fund, the insurer controlled by the company. Shearson and Salomon were co-managers of the offering.

Documents filed by the Securities and Exchange Commission in connection with its case against Jefferies indicated that, at the behest of a client, Jefferies arranged to trade heavily the stock of Fireman's Fund the day before the offering in an attempt to ensure a high price for the stock.

The SEC did not identify the client or the company involved. Lewis' role in the arrangement remains unclear. His firm was not directly involved in underwriting the Fireman's Fund offering, which might have given him an obvious motive in forcing up the stock's price. Lewis, however, is known to be close to American Express Chairman James D. Robinson III.

Lewis is well-known on Wall Street as an abrasive and brusque but successful trader in takeover stocks, a field known as "risk arbitrage." The field was made famous by Boesky, whose settlement of SEC insider trading charges last November produced the evidence that initially implicated Jefferies. The latter resigned Thursday as chairman of Jefferies Group, a Los Angeles brokerage, after agreeing to plead guilty to two federal felonies in connection with securities violations.

Lewis, however, has long tried to distance himself from Boesky, according to associates and acquaintances--although he spent a year, beginning in April, 1978, as a general partner in Boesky's firm. After Boesky's settlement was disclosed, for example, Lewis told acquaintances that he regarded Boesky as a "common criminal." On Monday, Lewis could not be reached for comment.

Lewis' career has involved associations with many business and government figures. For five months in 1977 he served as a special consultant to then-SEC Chairman Harold M. Williams. The list of limited partners in his firm, S. B. Lewis & Co., has included Williams as well as Roderick M. Hills, another former SEC chairman; Hills' wife, Carla, a former secretary of housing and urban development, and former Secretary of Transportation William T. Coleman. None were available Monday for comment.

Among the prominent business people who have invested in Lewis & Co. as limited partners are Milton Petrie, the philanthropist and retailer; Edfred L. Shannon Jr., chairman of Alhambra-based Santa Fe International; James D. Wolfensohn, a former partner of Salomon Bros. who is now a private investor and a director of CBS, and Leslie H. Wexner, founder and chairman of the Limited, a clothing retailer.

This combination of influential and wealthy backers partially reflects Lewis' own background. His father, the late Salim (Cy) Lewis, was a legendary Wall Street trader and head of the investment firm of Bear, Stearns. Cy Lewis died in 1978. By then his son had joined and left four Wall Street firms, reportedly creating uproars at each by his tactless and self-confident demeanor but also winning admirers for his obvious intelligence.

By most accounts, Lewis' most profitable relationship has been with Robinson, the chairman of American Express, which has been a crucial source of capital for Lewis' firm. Lewis has served as a key deal maker on several important American Express acquisitions.

These include its 1984 acquisition of portions of Allegheny Corp., for which S. B. Lewis & Co. received a $2.5-million fee; its 1981 acquisition of Shearson, for which the firm got $3.5 million, and its 1983 acquisition of Investors Diversified Services.

American Express contributed a reported $3 million to $4 million to S. B. Lewis' start-up capital of $8.4 million in January, 1980, and has continued to invest. In some years American Express has accounted for 75% or more of the smaller firm's capital.

Other investors in Lewis' firm have been beneficiaries of his deal-brokering skills. One is Petrie, who paid Lewis $1.6 million in 1983 for helping Petrie Stores with the acquisition of Miller-Wohl Co. Another is Wexner, for whom Lewis played an important role in 1982, when he persuaded the board of Lane Bryant Stores to sell out to the Limited rather than to a leveraged buyout group. That year Wexner invested as a limited partner in S. B. Lewis.

During the seven years of its existence, the Lewis firm has grown consistently. From its initial $8.4 million, the firm's capital had grown by November, 1985, to $133 million, according to the most recent financial statement available. In 1984, a year in which the firm made a profit of $20.6 million, Lewis distributed some $3 million to his partners.

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