The Fall of a Wall Street Superstar

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New York City's stock markets had closed for the week when the stunning announcement came. Even so, the bombshell sent the U.S. financial world reeling. In Washington, Securities and Exchange Commission Chairman John Shad announced that Manhattan-based Ivan Boesky, one of Wall Street's richest and most frenetically active individual speculators, had been snared in the biggest insider-trading case ever. In a consent decree Boesky, 49, had agreed to pay $100 million, which Shad described as "by far the largest" settlement obtained by the SEC for insider-trading activity. After a 16 1/2-month transition period in which Boesky will gradually dispose of his holdings, he will be barred for life from stock trading in the U.S. The tall, impeccably tailored Wall Street superstar has agreed to plead guilty to a single, unspecified criminal charge. Said Boesky in a contrite statement: "My life will be forever changed, but I hope that something positive will ultimately come out of this situation."

Something momentous already had. At a single stroke the SEC had written finis to one of Wall Street's most spectacular and controversial careers, built up in little more than a decade. The federal agency had also taken a mammoth stride forward in the insider-trading investigation that first exploded last May, when the SEC filed a civil complaint against Dennis Levine, a former managing director of the Drexel Burnham Lambert investment banking firm, and charged him with illegal trading in 54 stocks. Levine subsequently pleaded guilty to four criminal charges and gave up $10.6 million in illegal profits, the biggest insider-trading penalty until now. Ever since, Levine has been singing to the SEC; his testimony led directly to last week's judgment against Boesky. Now Boesky is cooperating with the regulators. There is no telling what further shocks may hit the stock market as a result. Said one Manhattan banker: "There'll be people named from almost every firm on Wall Street before this is over -- including mine."

The SEC's huge judgment could have a further chilling effect on the speculation that has swept the high-tech, high-volume stock market of the '80s. Boesky (pronounced Boe-ski), the son of a Russian immigrant, often played a central role in the dealmaking. His career was based on the high- rolling game known as risk arbitrage -- the opportunistic buying and selling of stocks in companies that appear on the verge of being taken over by other firms. The prices of those securities generally surge, giving arbitragers the chance to make swift profits.

Boesky always insisted that he bought stocks only after formal takeover bids were announced. But the SEC has shown that he and others often obtained advance tips from investment bankers about what deals were in the works and then used the information to make illegal trades. Says Investor William Simon, who was Treasury Secretary under Richard Nixon: "If anybody ever had any doubts that the authorities were serious about the issue, this ought to put those doubts to rest."