One of the most famous cases of insider trading made household names of Michael Milken, Dennis Levine, Martin Siegel and Ivan Boesky. Milken received the most attention because he was the biggest target for the Securities and Exchange Commission (SEC), but it was actually Boesky who was the spider in the center of the web.

Boesky was an arbitrageur in the mid-1980s with an uncanny ability to pick out potential takeover targets and invest before an offer was made. When the fated offer came, the target firm’s stock would shoot up and Boesky would sell his shares for a profit. Sometimes, Boesky would buy mere days before an unsolicited bid was made public – a feat of precognition rivaling the mental powers of spoon bender Uri Geller.

Like Geller, Boesky’s precognition turned out to be a fraud. Rather than keeping a running tabulation of all the publicly traded firms trading at enough of a discount to their true values to attract offers and investing in the most likely of the group, Boesky went straight to the source – the mergers and acquisitions arms of the major investment banks. Boesky paid Levine and Siegel for pre-takeover information that guided his prescient buys. When Boesky hit home runs on nearly every major deal in the 1980s – Getty Oil, Nabisco, Gulf Oil, Chevron (NYSE:CVX), Texaco – the people at the SEC became suspicious.

The tips were well worth the money, because Boesky made millions by buying up pre-takeover shares and unloading them after the market learned about the deals. The takeover of Carnation by Nestle (OTC:NSRGY) alone netted Boesky $28 million and, for that reason, alerted the Securities and Exchange Commission (SEC) to his activities. Siegel’s firm also came under scrutiny, and Boesky and Siegel parted ways, with Siegel receiving a final pay-off from Boesky of $400,000 dropped at a phone booth. The net was already cast, however, and the SEC reeled in Siegel and Boesky along with other big criminal names, such as Michael Milken.

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The SEC’s break came when Merrill Lynch was tipped off that someone in the firm was leaking info and, as a result, Levine’s Swiss bank account was uncovered. The SEC rolled Levine and he gave up Boesky’s name. By watching Boesky – particularly during the Getty Oil fiasco – the SEC caught Siegel. With three in the bag, they went after Michael Milken. Surveillance of Boesky and Milken helped the SEC draw up a list of 98 charges worth 520 years in prison against the junk bond king. The SEC charges didn’t all stick, but Boesky and Milken took the brunt with record fines and prison sentences.

Siegel became a witness for the government and was let off easy with a two-month sentence and a fine, while Boesky was given three years and fined $100 million for his involvement in the scheme.

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