WASHINGTON — It was a scene to chill the heart of even the most stalwart chief executive: three Belzbergs relaxing in a sauna on a Sunday morning, talking about whether to launch a hostile takeover bid for a major oil company.
They had gathered in William Belzberg's Los Angeles mansion that Sunday, March 16, 1986--first in the bedroom sitting area, later in the sauna--to consider "Project Slugger," a proposed takeover bid for Kentucky-based Ashland Oil Co., one of the nation's leading independent oil marketers and refiners.
Fifty-four-year-old William Belzberg was there, as was his brother Samuel, 59, chairman of First City Financial Corp., a diversified holding company that the wealthy Canadian family uses for its sprawling investments and well-publicized corporate takeover raids.
Also present was Samuel's son Marc, 32, who directs the Belzbergs' stock trading in New York.
For more than an hour, the Belzbergs discussed Ashland's assets and share price, debating whether to go forward with stock purchases that ultimately would force the family to disclose its takeover intentions publicly.
"It was concluded that we should," Marc Belzberg later recalled.
Within 24 hours, the Belzberg family's bid for control of Ashland was under way. And so was a series of events that would lead the Securities and Exchange Commission to file charges against Marc Belzberg and First City.
The SEC has charged that Belzberg and First City violated securities laws by concealing ownership of more than 5% of Ashland's stock.
The SEC said the fraud involved "parking" of shares actually owned by the Belzbergs with the Wall Street firm of Bear, Stearns & Co. While Bear Stearns was not charged, the allegations concern stock purchases by the firm's top executive, Alan C. (Ace) Greenberg.
The stock parking, the SEC charges, was part of a scheme to save the Belzbergs millions of dollars by hiding their investment in Ashland, a move that allegedly enabled the Belzbergs to continue buying Ashland stock at artificially low prices.
The Belzbergs deny the charges, and later this year they will battle the SEC in federal court in Washington. But the case has significance that goes well beyond the Belzbergs and Ashland.
Narrow Civil Proceeding
The case is a test of the SEC's ability to successfully prosecute alleged takeover abuses, especially stock parking, in cases where the facts are complex and the defendants contest the charges.
The SEC's ongoing investigation of Drexel Burnham Lambert Inc. and its influential junk-bond chief, Michael M. Milken, has focused on allegations that Milken engaged in an illegal stock-parking scheme with former stock speculator Ivan F. Boesky.
Drexel and Milken have denied any wrongdoing; Milken's personal defense lawyers include attorneys at Paul, Weiss, Rifkind, Wharton & Garrison, the same law firm that will represent the Belzbergs later this year.
Drexel and Milken are the subjects of a wide-ranging civil and criminal investigation into a pattern of takeover abuses. In contrast, First City and Marc Belzberg are the subjects of a narrow civil proceeding concerning only the Ashland deal.
What follows is the story of how the Belzbergs' bid for Ashland led the family into conflict with the SEC. It is also an anatomy of the complex issues surrounding stock parking, a securities violation that many on Wall Street claim is technical and picayune but that remains at the center of the most ambitious securities fraud investigation in SEC history.
Spread over Canada and the United States, the Belzbergs' financial empire is both enormous -- estimates peg its assets at more than $7 billion--and tightly controlled by family members.
The dynasty was founded by Samuel Belzberg's father, Abraham, who immigrated to Canada from Poland and built a modest fortune in real estate from the profits of a furniture store in Calgary.
Abraham's three sons--Samuel, William and Hyman--transformed that legacy into an influential economic empire through the liberal use of debt financing, a sharp eye for asset values and an aggressive investment and takeover strategy.
The second-generation Belzberg brothers remain exceptionally close, although Samuel Belzberg, as the chairman of First City, is the undisputed architect of the family's business strategy.
In recent years, a third generation of Belzbergs has begun to play a role in the family's financial affairs. Brent Belzberg, 36, Hyman's oldest son, works for First City in Toronto. And Marc Belzberg, after earning a master's degree in business administration and serving brief apprenticeships on Wall Street, has risen to direct the family's New York stock-trading operations.
The family's decision early in 1986 to take a position in Ashland stock was arrived at casually, according to testimony by Belzberg family members. Ashland stock was recommended to Samuel Belzberg by a New York stockbroker named Alan D. Alan, whom Belzberg had known for less than two years.