In this week’s episode of The Dark Side of Finance, Darryl Lyons takes us on a deep dive into one of the most infamous insider trading scandals in Wall Street history—the rise and fall of Ivan Boesky. Known as “Ivan the Terrible,” Boesky’s story is a riveting tale of ambition, greed, and the consequences of financial misconduct that rocked the 1980s financial world.
Darryl unpacks how Boesky leveraged insider information to amass a fortune, only to face a dramatic downfall orchestrated by federal prosecutors, including Rudy Giuliani. Along the way, listeners will gain insights into the broader implications of insider trading on trust in the financial system and the regulations that aim to maintain a level playing field.
Key show highlights include:
- The history of insider trading and why it poses such a significant threat to economic trust.
- How Ivan Boesky’s merger arbitrage strategy turned illicit insider information into millions.
- The cultural impact of Boesky’s actions, from inspiring Wall Street’s Gordon Gekko to becoming a cautionary tale in financial ethics.
- Practical lessons on identifying and protecting against modern financial misconduct.
Join Darryl as he paints a vivid portrait of an era defined by excess, examining how the lessons of Boesky’s case still resonate today. With actionable advice for safeguarding your financial future, this episode is a must-listen for anyone looking to stay vigilant in an ever-evolving financial landscape. Remember, trust is the lifeblood of our economic system – keep your head on a swivel as we explore The Dark Side of Finance.
Transcript:
Hey, this is Darryl Lyons, CEO and Co-Founder of PAX Financial Group, and you’re listening to the Dark Side of Finance. This information is general in nature only. It’s not intended to provide specific investment, tax, or legal advice. Visit PAXFinancialGroup.com for more information. Hey, do you remember that time where Martha Stewart went to prison for insider trading?
That was like back in 2001? If you haven’t heard that story, she had some insight information on a biopharma company and went to jail. It’s kind of a big deal to have insider information. Insider information is different than most crimes. There isn’t exactly like this widow who lost her entire IRA or a family who, you know, went completely broke because all of their assets were stolen.
There isn’t like a real portrait of a victim when it comes to insider information, but it’s actually one of the most important issues in financial crime, because it’s actually the enemy in trust. And trust, frankly, is the lubricant of this whole economic engine that makes America run fast and strong and faster and stronger than any other country.
If this trust is violated through things like insider information, the whole machine breaks. So, I’m going to share a little story about insider information. But first, let me set the stage just a little bit. So just so you’re clear, the definition of insider information is the buying or selling of a company. Usually securities like stocks, by individuals who possess material, nonpublic information about a company and material means that it’s significant, nonpublic means that, you know, I think that’s obvious, but it’s not available to the public.
So, an example, a lawyer drawing up documents for merger. So, they’re responsible for writing up the documents for merger, has inside information because they’re on the legal side of the transaction and they buy that stock that’s, you know, inside information. If you’re an officer or a director of a company that owns or a 10% shareholder of a company that’s considered an insider.
So, there was a time, years and years ago, like in the 30s, where insider information wasn’t a big deal, and a lot of people got very wealthy that way. Rockefellers are the name I can think of that made a ton of money just by having it inside connections. And obviously, if the retail public feels that there’s not a degree of fairness, then they’ll exit out of the system and then the whole thing doesn’t work.
The SEC, the Securities Exchange Commission takes it pretty seriously. They actually created a rule called rule 10 B, and then they had some subsequent amendments to it. And they’re constantly refining it. I think it’s come a long way. For example, there’s like a 90 day cool off period. If you have inside information before you can trade, there’s disclosures that you have to have even today you can find, online.
I know some people have adopted trading strategies where they look for managers, executives, large shareholders of companies that are buying stock or selling stock, and then they follow those trades because these executives have to disclose it. And then that information becomes public, and you can actually trade off of just that information. So, it’s become a lot more transparent and, a level playing field.
I still think there’s a next level that we have to go to. This was reflected and just recently, there was a stock act that was passed. This was an attempt to level the playing field with Congress. So, for those that haven’t been paying attention, it’s clear to me, and it should be clear to all of us that Congress is been using their inside information to take advantage of market disconnects and making money off of that.
So, we’ve got to fix that thing in Congress. I think we all can agree. And but we’ve come a long way as a country to make sure that this public trust is strong, even if the United States is still not perfect. We’re still the cleanest shirt in a load of laundry, maybe a dirty load of laundry, but we’re still the cleanest shirt, and we built on our mistakes.
And that’s really the transition into the story that I think was one of the mistakes that really rocked our world when it came to insider trading. This happened in the 1980s. The guy that’s really the central character of this story was an immigrant. Actually, he wasn’t the immigrant. He was the son of a Jewish Russian immigrants.
He was born in the 30s, like around the mid-30s, and they were a middle-class community. But, you know, just like a lot of immigrants, they came here with a lot of hustle and grit and really nothing to lose. So, they moved to the Detroit area, worked hard, started some like delis and, you know, raise a family up, a middle-class family, the guy’s name, you may or may not have heard of him, Evan Boesky or Ivan Boesky.
And he ended up taking over the family business when he was a little older. Now they moved from delis to bars. I don’t know why or how that transition was made, and I’m not even sure if they’re bars, because if you read a lot of contradicting stories say that they were strip clubs, bars, taverns, but they weren’t delis anymore.
And this guy Ivan really bankrupt them. He didn’t run them very well. And was likely very embarrassed by his business acumen. So, he tried the college thing but failed out of college. Not once, not twice, but three times. And he finally just, I guess, gave up. Academics weren’t his thing. Fair enough. Ended up becoming a law clerk then.
That didn’t quite work out. He, you know, struggled with that. At 27, he landed a gig as a trader on the floor of, I guess, a Wall Street firm. He ended up getting fired on that one because he lost $20,000 in a trade, I’ve lost in years before, money on trades. But this was the 1970s, so that was a lot more money back then.
Now, in 1966, I also say this, 1966, he did move from Detroit to New York. He ended up getting married to a lady, named Seema Silberstein, and the interesting thing about her is I’m sure it was intentional is that she came from money. Her dad, or I guess her parents owned a small little hotel called the Beverly Hills Hotel in California.
If you haven’t heard of that, maybe you’ve heard of the band the Eagles and heard the song Hotel California. And on the cover of the Eagles album is the Beverly Hills Hotel in California. So now he’s kind of, he actually went to law school somewhere in there and learned about law. And so, he’s kind of got this law background.
The clerk background, a little bit of trading, and he decides to set up his own investment firm now that he’s got some family money, $700,000, actually, it doesn’t seem like a lot. Well, I guess it is a lot of money, but back then, $700,000. You can only imagine. I mean, this is like 1975. He started this firm.
I mean, it was a ton of money, ton of family money. So now he’s off to the races. So now he’s building out his client portfolio. So, he has to have a strategy. So, he learns about this idea called arbitrage. Arbitrage is when you identify a difference between prices and investments. And what he did was something called merger arbitrage when he saw like a stock, it’s merger arbitrage when he saw a stock or a company that was potentially going to get acquired and that he anticipated that that acquisition was going to take place.
And whenever an acquisition takes place of a smaller company, usually the acquired company stock price shoots up. The acquiring company, the price can sometimes go down because they have a lot of capital expenditures to make the deal work. But the acquired company, if you can find those acquired companies, before any word gets out, then that price usually shoots up and you can make some money.
So, he claimed to have an affinity to be able to do this, a skill, a sixth sense, so to speak, to identify the companies that likely would get acquired. And so, he developed these stock portfolios for his family and rich friends, about 75 to 100 stocks of companies that he would purchase. Many of which that he thought were likely to be merger targets, acquisition targets.
He grew that portfolio to about 3 billion in assets. He was making, I mean, $400 million a year. He became one of the richest people on Wall Street. He actually made the Forbes list of the 400 richest people in the country. One of the deals that he made a lot of money off of was this, when Chevron bought Gulf Oil a long time ago, $65 million transaction.
Apparently, he kind of just anticipated that he had this sixth sense that this thing was going to happen. It’s really kind of interesting. His crystal ball was very unique. He built this office on Fifth Avenue in New York, and he had 100 employees. And if you could think about this guy, the picture of this guy, like, he’d have multiple phones in his hands, multiple phones.
I mean, 3 or 4 of them. At the time, he lived off coffee, had three hours asleep. He’d get up at 4:30 a.m. every morning, workout, head to his office in a limo, arrive at 7 a.m., and then work until 1 a.m., and then do it all over again. He had kind of, I mean, it was kind of a sweatshop.
100 people just cranking it out every day, and people just admired him because he loved the limelight. Always wearing, like, these three-piece black suits and, rode in a helicopter from one office to another. Just really larger than life. Some people called him Ivan the Terrible, because of the way he treated people. I, you know, I never heard much about that, but that was a nickname he got.
He actually went to Berkeley once and spoke. So he was, you know, getting a lot of notoriety. He wrote a book, called Merger Mania. I’ve never read it, but maybe you have. But he wrote a book. So, Berkeley asked him to speak, and so he spoke to a group of people at Berkeley, and he said this.
He said greed is healthy. It makes you feel good. That and that’s what he told the Berkeley audience. Now, I don’t know if that sounds familiar, but there was a movie, Gordon Gekko, that you might have seen called Wall Street in the 80s, where, the Gordon Gekko said, greed is good. Well, it came from an Ivan Boesky quote, from Berkeley.
So, Gordon Gekko was inspired by Ivan Boesky. Again, an icon, a persona larger than life, and just absolutely killing it, you know, that there was a lot of money to be made in oil at that time. If you recall, T. Boone Pickens was the name that was around at the time. He was a Texas icon.
For those that know the Texas oil scene, he was making money at the time. And there was one oil merger that Ivan worked on that didn’t work out. So, I guess his crystal ball broke. And I think that was the catalyst for him to start getting maybe a little nervous. And he started, really getting a, I guess, just really into this inside information game.
So, he started working with this guy named Martin Siegel. And there’s a couple other guys, Dennis Levine, at this firm called, Drexel, Lambert, Burnham. I think we might have had a couple partners there, but he started getting inside information from these guys, and then he would go and meet them at, like, hotels with pass code names and briefcase full of cash, and they would trade the information, and he would come and sure enough, bring a lot of money.
Not like, like $10,000, like millions of dollars. And so, he was doing this thing and exchanging information. And that’s really, that’s really how he was getting all this inside information. That was his crystal ball. Then he got busted. They finally figured this thing out. They investigated him. Interestingly enough, this was in, like, 1986. They started to figure out his scheme.
And the federal prosecutor that led this investigation was actually Rudy Giuliani. For many of you guys know, this was around September 1986. So, they ended up arresting him, this Wall Street cancer, which was Ivan the Terrible. But they were like, we want you. We know you’re dirty, we know what you’re doing, but we also think you’re kind of like the mother hen of a brothel.
And we want the list of all the people that have been in the brothel, you know what I mean? They know that there’s other people in this game. So, what they did is they got Ivan the Terrible and, they got him at the time. They wired him up and they put on this like, I guess, like a white undershirt.
And his attorney goes, my client will not wear a shirt under $600 because he says it makes his skin rash out. So, this guy had developed this kind of this taste. That’s just a side little kind of an idea of how he lived his life. In fact, just on that same vein, he would go to restaurants.
This was in his prime. He would go to restaurants and order everything on the menu just to try a piece of a little, just to make a statement. So, he’s kind of a bizarre person that way. But anyways, he wired him up, all led by Rudy Giuliani. And they’re going after a bunch of these guys. So certainly, at this investment bank, but also they were going after a guy that you might have heard of called Michael Milken.
I don’t know if that name is familiar. Some of you guys have been in business for a while. This guy is like a junk bond icon of the 80s. And Michael Lewis was an author, and you guys might know that name. He’s written some incredible books over the years, and one of his best, most famous books is called Liar’s Poker.
Liar’s Poker really was a book that came out maybe in the 80s, maybe 90s, but I read it when I was in the 90s. And the intent of this book was to tell everyone about Ivan the Terrible and Michael Milken and how bad Wall Street was, but what it ended up doing. Michael Lewis said this. It actually ended up inspiring a bunch of people like myself, Darryl Lyons, to get into the industry because it sounded so fascinating not to do bad things, but actually to do good things.
Well, Michael Lewis wrote this book about Michael Milken, who was the junk bond trader, which was really the Cash Money guy behind all of Ivan’s business deals. Ivan was just a rounding error to all Michael Milken was doing on Wall Street, with the junk bond era. So, the FBI wanted to use Ivan to go after Milken.
And so, they were doing everything to go to take Milken down. They put wiretaps on Ivan and, they tried their best to get him, Michael kind of. That’s a totally different story. They ended up busting most of the investment guys that Ivan was working with. And they really after that, this was in about December 1987.
They ended up arresting, formally, Ivan Boesky, putting him in prison. He was actually, he was only in there 22 months because he had, with air quotes, good behavior. And, but unfortunately, then he had four kids. In 1991, his wife divorced him. This was after thirty years, a pretty, I guess, healthy divorce because she cut him a check for $23 million and $180,000 for the rest of his life, so I think he’s okay.
He ended up getting married again. Really getting into religious studies, kind of becoming just kind of living in La Jolla near San Diego with his wife, Marianne, had one more child and interestingly enough, actually died in 2024. So just this year. So, kind of, timely to go back and reflect on this story.
The really interesting part about this story, I think the whole character of Ivan is larger than life, and certainly Michael Milken in that whole era, which has been studied and written about and, movies have been made about. But I think the main point of the story is how this was the era that insider information was really, aggressively pursued by the Security Exchange Commission so that the playing field can be leveled.
And I think there’s, I know as a financial advisor, there’s rules that I have to abide by. And I believe many people in the industry are playing by those rules. And you always have the outliers. But this idea of having fair play for everyone is necessary because, as I mentioned before, anything that puts sugar in the gas tank really destroys this engine that makes this company great.
And insider information is definitely that sugar. So, I hope that gives you some insight into historical finance crime that took place in the 1980s. There’s a lot to read about. Very interesting time. And I want you to continue to be aware of the con artists that exist today. They come in all different shapes and sizes.
Some of them are Wall Street suits, and some of them are in your church, and some of them show up in your family, in all different ways. The main thing is, keep your head on a swivel at all times and look out for you, your parents, your kids, and your community. And remember, you think different when you think long term. Have a great day.
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