Going After the Crooks

The affair has quickly become known as Wall Street's Watergate. That hardly seems an exaggerated description for the drama of financial power and corruption that was exploding on both coasts of the U.S. last week. An enormous scandal was spreading at the core of America's investment community, touching some of the biggest moneymen in the country. A civil and criminal investigation was peeling back layer after layer of evidence in a bid to uncover the full pattern of illegalities that had come to light in the $2.5 trillion U.S. stock market. There was even that ultimate Watergate touch: the disclosure that for weeks, perhaps months, conversations had been secretly tape-recorded in an effort to plumb the depths of the worst insider-trading scandal in U.S. history.

In the paneled corridors of Manhattan's brokerage firms and investment houses, the scandal was reverberating in an atmosphere that one eminent Wall Street lawyer described as "hysteria." At blue-chip law firms, telephones rang incessantly as worried players of the multibillion-dollar business- takeover game sought advice and protection. Said a nervous Manhattan brokerage executive: "Everyone is scared to read the newspaper in case his name might be in it." Similar jitters struck in Los Angeles, where guards carefully screened visitors to the offices of one of the country's hottest investment firms, now the focus of curiosity and controversy.

All across the U.S., investors were raging at the discovery that Wall Street high rollers had been ripping off millions of dollars by trading on knowledge not available to the general public. That sweeping form of sophisticated fraud did not merely touch the pocketbooks of professional stock-market players. The illicit profits came from taking unfair advantage of price movements in a broad range of stocks. That meant, in the end, that the speculators had pilfered from funds that countless thousands of ordinary investors had contributed to the market, in the form of their own stock purchases or investments in pension and mutual funds that in turn had bought securities.

At the center of last week's maelstrom was a shadowy figure whom few people had heard of until last week: Ivan Boesky. On Nov. 14 the Securities and Exchange Commission electrified the financial world with news that Boesky, 49, one of America's richest and savviest stock-market speculators, had been caught in an ongoing insider-trading probe. Boesky had agreed to pay $100 million in penalties, return profits and accept eventual banishment from professional stock trading for life for his alleged wrongdoings. He also faces a single, as yet unspecified, criminal charge, which could lead to a five-year prison term.

News of Boesky's misdoings echoed as far away as London, where he resigned his chairmanship of an investment trust known as Cambrian & General Securities. London brokers were reportedly told they could still trade with Boesky, but must inform the surveillance division of the London Stock Exchange of any such dealings.