A Reader asks: They don't make insider traders like Ivan Boesky anymore, do they?

A reader asks: They don’t make insider traders like Ivan Boesky anymore, do they?

Archer replies: No they don’t, and possibly it has something to do with the elimination of phone booths in New York City.

In his book, Den of Thieves, James Stewart describes how Boesky paid off one of his informants, Martin Siegel, then an investment banker at Kidder Peabody. Per Stewart, “He (Siegel) took suitcases of cash that were handed off both in the lobby of the Plaza Hotel in New York and, in one very bizarre encounter, at a pay phone booth on a street in Manhattan.”

Time Magazine reported: “In the SEC’s civil complaint against Siegel, the agency charged that he had passed on insider information to Boesky starting around August 1982. On the basis of those tips, the arbitrager was said to have made at least $33 million in illegal profits.”

Siegel took home $700,000. Seems like he mispriced his services.

For those who were there, 1980s New York was a wild ride, inextricably linked with Rudy Giuliani who, like the few remaining Manhattan phone booths, survives but in a sadly degraded fashion. In those days, he was riding high as the U.S. Attorney for the Southern District of New York. It was he took down the Mob, and it was he who announced Boesky’s sentencing – three years – a “heavy sentence,” as he put it at the time.

While Giuliana’s record in pursuing Mafia personages is unimpeachable, his success against alleged Wall Street scofflaws was more checkered. Two of his targets, Richard B. Wigton and Timothy L. Tabor, were arrested with great fanfare but never convicted of anything. Like Siegel, both were employed by Kidder Peabody; Wigton suffered the further ignominy of being led from his office in handcuffs.

But while phone booths may be largely a thing of the past, insider trading is no doubt with us still; there is always someone searching for what might euphemistically be called “information advantage.” When and how that crosses the line into illegality is not always as clear as you might think. Thankfully, there is Bloomberg’s Matt Levine and his “10 Laws of Insider Trading” to help clarify any potential misunderstanding.

Number 1 is, of course, “Don’t do it.” Number 2 is “Don’t do it by buying short-dated-out-of-the-money call options on merger targets.” Coming in at #7 is, “Don’t Google ‘how to insider trade without getting caught’ before doing it.” And at #8, this, “If you didn’t insider trade, don’t forget and accidentally confess to insider trading.”

None of this is, as he says, legal advice.

For those made nostalgic by the cash-in-suitcases aspect of l’affaire Boesky, there is always Bob “gold bar” Menendez, last seen busily tossing his “tall and beautiful wife” (per his lawyer, via reportage in The New York Post) under the proverbial bus in a courtroom in lower Manhattan. (Given her apparently elevated stature, possibly a double decker is required for this.)

The Post has been there for the blow by blow. “Where were the gold bars found?” asked the senator’s attorney, Avi Weitzman, rhetorically, in his opening statement.  “[The] gold bars were found in a locked closet. It is Nadine’s (Menendez’s wife) closet, filled with [Nadine’s] clothes.”

“The senator did not know the gold bars were there,” the lawyer continued, suggesting that the couple mostly led “separate lives.” Clearly marriage vows only take you so far. In sickness and in health, sure, but nothing about potentially sharing a jail cell in Pennsylvania.

Facing incarceration, some people get religion; others call on their therapist. As recounted by ABC News: at his 1987 sentencing Boesky's lawyer quoted his psychiatrist as saying his client "has begun to recognize that he suffered from an abnormal and compulsive need to prove himself, to overcome some sense of inadequacy or inferiority that is rooted in his childhood.”

Menendez, too, has had his traumas. Regular readers will remember that the senator initially cited his family’s dispossession by the Castros for the need to maintain a healthy cash position around the house. Those scars linger.

In the matter of matrimonial finagling, Menendez is again following a trail pioneered by Boesky, who died on May 20 at the age of 87. From a CBS news report on the latter’s passing, “Three years after his release from a Brooklyn halfway house in April 1990, Boesky and his wife Seema divorced after 30 years of marriage. Claiming he had been left penniless after paying fines, restitution and legal fees, he won $20 million in cash and $180,000 a year in alimony from his wife's $100 million fortune. He also got a $2.5 million home in the La Jolla section of San Diego.”

A nice house in a nice neighborhood and a little walking around money in exchange for three years in the slammer. Maybe he considered it a good trade.

Woof!

(NOTE TO READERS: My book, Radical Problems, Simple Solutions: How Markets can Help Fix the Retirement Crisis and Solve Wealth Inequality is out. To purchase a copy and support your local independent bookstore, go to Flyleaf Books.)

On a related matter, see my op-ed in Barron’s “To Fix Wealth Inequality, Start Young.”