Even after pleading guilty to a pair of felonies nearly two years ago, Boyd L. Jefferies enjoyed a cleaner reputation than others caught in the securities industry corruption scandal.
The word from his lawyers, colleagues and Jefferies himself was that his crimes were minor violations of arcane laws, an innocent reflection of the master trader's zeal to accommodate clients.
"These were extremely technical, really closer to civil violations," Jefferies, the founder of Jefferies & Co., said in an interview a year and a half ago.
But now a harsher image is emerging of how Jefferies turned the Los Angeles company into perhaps the most aggressive and innovative stock trading firm off Wall Street.
And once again the source is Boyd L. Jefferies.
The new tale is being told in a federal courtroom in Manhattan, where the former executive is the prosecution's star witness in the criminal trial of chemical company GAF Corp. and its vice chairman.
On Tuesday, the judge declared a mistrial in the case, ruling that the government's failure to disclose possible tampering with a key piece of evidence hurt the defendants unfairly. The judge said the second trial would begin Thursday, which will put the spotlight back on Jefferies.
In his debut on the witness stand last week, Jefferies, 58, described how he inflated the price of Union Carbide stock so his client, GAF, could sell 10 million shares at a higher price. He also acknowledged participating in illegal schemes with at least four other customers but did not provide details.
He said he destroyed business documents routinely, even as he was negotiating his agreement to cooperate with the government. And he admitted funneling thousands of dollars in illegal campaign contributions to politicians through company employees.
Jefferies is not the only witness expected to provide a glimpse behind the scenes at the firm. Another witness on the government list is the firm's director of trading, James Melton, who was described by a prosecutor as having "joined the (GAF) conspiracy and carried out the illegal arrangement."
As part of its plea bargain with Jefferies, however, the government agreed not to prosecute other employees and not to revoke the brokerage license of Jefferies & Co. for his acts.
Michael L. Klowden, a lawyer with the firm's outside counsel, Morgan, Lewis & Bockius, and a director of the brokerage's parent, Jefferies Group, said a company inquiry found that employees involved in violations were following orders from Jefferies and did not act independently.
Highly Successful Trader
As a result, no one has been fired for participating in any of the schemes. But the brokerage firm has instituted new internal controls and hired Paul Bodor, a former official with the Securities and Exchange Commission, to monitor compliance with U.S. securities laws.
Before pleading guilty in April, 1987, and resigning from the firm, Jefferies was one of the most successful traders in the country. His tenacity and creativity in executing huge trades for large institutional clients and takeover specialists had turned his 25-year-old firm into a force in the merger arena.
Along the way, the former cattle ranch laborer had become wealthy. His salary and bonus in 1986 totaled $1.8 million and he owned 13% of the company. He sold a home in Laguna Beach for $8.3 million in 1986 and bought a house in posh Indian Wells, near Palm Springs, to go with his ski home in Aspen, Colo.
When his involvement in the Wall Street scandal surfaced, associates blamed his passion for trading and accommodating customers. The charges to which he pleaded guilty did not have the odor of self-enrichment that marked the pleas of earlier defendants, such as investment banker Dennis B. Levine and stock speculator Ivan F. Boesky.
One count involved hiding stock owned by Boesky on the books of Jefferies & Co., a practice known as "parking." The other covered permitting an undisclosed investor to buy stock without putting up at least the 50% cash required by law, a "margin" violation.
Even when the press reported that the margin violation involved the stock of Fireman's Fund and other details of Jefferies' activities began to leak out, the extent of his stock manipulation remained masked.
In recent weeks, however, a clearer picture of what Jefferies did began to emerge.
On Nov. 3, stock speculator Salim B. Lewis was indicted on conspiracy and stock manipulation charges in connection with alleged efforts to inflate the price of Fireman's Fund stock.
Linked to Bilzerian
According to the charges, Lewis arranged with Jefferies to buy 410,000 shares of Fireman's Fund to boost the price the day before American Express sold stock and warrants in the company to the public. Lewis has a long connection with American Express, but no one at the financial giant has been accused of wrongdoing or involvement.