In 1985, Ivan Boesky reportedly told the graduates of the Haas School of Business at the University of California, Berkeley that greed was “healthy.” Legend has it the sentiment and Boesky himself inspired the iconic character Gordon Gekko in the 1987 movie “Wall Street.”
Today, Boesky‘s name may no longer be synonymous with Wall Street millions or corporate greed. But in the early 1980s, Boesky was an investment banking titan who made hundreds of millions of dollars betting on corporate takeovers. That was until his reputation and his stock brokerage came crashing down in what was then the biggest insider trading scandal of all time.
Boesky, who is now 83 and remains banned from securities trading, is one of the subjects of the new CNBC primetime limited series “Empires of New York,” which premieres Sunday, Nov. 29 at 8 p.m. ET and chronicles the rise of such infamous Big Apple figures of the 1980s as Boesky and mobster John Gotti, as well as future politicians Rudy Giuliani and Donald Trump.
Here’s what you need to know about Ivan Boesky.
A ‘Great Gatsby’ character
“Ivan Boesky is, in some ways, a ‘Great Gatsby’ character … this self-made person, very much invented,” Vanity Fair contributing editor Bethany McLean says in the first episode of “Empires of New York.”
Journalist Jeff Madrick, who helped Boesky write a book on mergers in 1985, says in “Empires of New York” that the Wall Street trader was a “classic outsider” who “didn’t do well in school.” And, while Boesky was a member of New York City’s Harvard Club, and he sometimes dropped hints that he had an Ivy League education himself, he reportedly on obtained his membership in the club by donating money.
The son of Russian immigrants, Boesky also rarely advertised the fact that he got his start as a businessman in his 20s by working in the Detroit pubs owned by his father, including helping to run a strip club that operated out of the basement of one such establishment.
But Boesky married into a wealthy family. Boesky and his wife, Seema Silberstein, moved to New York in 1966, where he began working as a stock broker on the advice of a friend who was having success as a Wall Street trader.
By 1975, Boesky opened a stock brokerage, called Ivan F. Boesky & Company, with $700,000 in seed money that mostly came from his wife’s family.
How he built his fortune
Boesky’s specialty was stock arbitrage, which is a term that describes when stock traders try to exploit market inefficiencies, such as when a trader believes one company’s stock has been undervalued. Arbitrage traders like Boesky often buy up big chunks of stock in a company on the bet that the price will jump, especially if that company is on the verge of being acquired. It can be a big gamble, especially if a takeover falls through or the company’s stock drops for any other reason.
Relaxed financial regulation under President Ronald Reagan opened the door for a flood of corporate mergers and acquisitions in the 1980s, creating a fertile ground for traders like Boesky to make money.
“Boesky had this reputation for literally living on the telephone all day and night,” CNBC’s Andrew Ross Sorkin says, looking for any “morsel” of information that might give him a leg up on the rest of the market. “And if it didn’t work out for him, he was throwing things.”
Boesky reportedly became the highest-paid trader on Wall Street in 1985, according to the Associated Press. At the peak of his investment business, Boesky was overseeing an investment fund with over $3 billion in assets and he had a net worth of more than $200 million (more than $475 million in today’s money) and a place on the Forbes 400 list of America’s wealthiest people.
And he wasn’t shy about advertising his success, as The New York Times pointed out that Boesky was the first arbitrage trader on Wall Street to hire his own public relations firm, as he would gladly promote himself by taking speaking engagements at events across the country and even writing a book, with the journalist Madrick, called “Merger Mania.”
Boesky also regularly traveled by helicopter in between his brokerage’s Manhattan office and his nearly 190-acre Westchester County estate, purchased from heirs of the Revlon cosmetics company and featuring a 12-bedroom, red brick Georgian mansion. And, a limousine with three different telephones installed reportedly chauffeured Boesky around the city.
But Boesky had not been playing by the rules. After Boesky lost a reported $60 million on a failed deal for Cities Services (a predecessor to Citgo) in 1982, he started an insider trading scheme in an effort to save his business and avoid any such debacles going forward.
Boesky entered into an illegal partnership with prominent investment banker Martin Siegel, of the Wall Street firm Kidder, Peabody & Co., to get inside information on pending corporate transactions, Boesky later admitted to the SEC while pleading guilty to an insider trading charge in 1987.
Siegel provided Boesky with illegal inside information on deals that Boesky eventually admitted made Boesky more than $33 million in profit between 1982 and 1986. (In return, Boesky paid Siegel roughly $700,000 in bonuses for those tips.)
But in November 1986, Boesky’s game of arbitrage came to an end when federal officials arrested the then 49-year-old stock trader after discovering his role in a similar but separate insider trading scheme with Dennis Levine, an investment banker at the Wall Street firm Drexel Burnham Lambert, from which Boesky made roughly $50 million in profits, according to the government.
Boesky cooperated with federal authorities, pleading guilty to a single charge of making false statements to the government and agreeing to pay a then-record $100 million fine. He also informed on some of his other partners, including Seigel. Boesky also offering information on investor and “junk bond king” Michael Milken.
Boesky served just over two years in prison. As part of his guilty plea, Boesky received a lifetime ban from securities trading.
But after his arrest, Boesky attained a level of infamy that easily outpaced the fame his financial success had earned him.
When director Oliver Stone looked for inspiration for Gekko, who embodied corporate greed on the silver screen (and ultimately met a similar fate to Boesky), the Academy Award-winning filmmaker drew on the real-life stories of multiple infamous investors, from Boesky to fellow insider trader Owen Morrissey.
The movie’s famous “greed … is good” speech delivered by Gekko (portrayed by actor Michael Douglas) echoed what Boesky reportedly said at Berkeley: “Greed is all right, by the way … I think greed is healthy. You can be greedy and still feel good about yourself.”
Boesky’s wife, Seema, divorced him in 1991 and paid him a settlement of $23 million, along with an annual sum of $180,000 for life.
For the most part, Boesky has remained out of the limelight over the subsequent decades. In 2012, one of Boesky’s cousins told The New York Times that the disgraced trader was living in La Jolla, California with his second wife and a new child. “That’s about all I know,” said Boesky’s cousin.
CNBC Make It’s attempts to reach Boesky for comment were unsuccessful.
Watch CNBC’s “Empires of New York,” premiering Sunday, Nov. 29 at 8 p.m. ET.