Boesky worked hard while he was in school, selling ice cream from a truck. He was picked up repeatedly by the local police for staying in business past the 7 P.M. curfew imposed by his license. He did attend Cranbrook for two years, though he didn’t graduate. His academic record there was undistinguished, but he excelled at wrestling, starving himself to lower his weight category and driving himself to the point where he could do an astounding 500 push-ups. He was constantly in the gym with his best friend, an Iranian exchange student named Hushang Wekili. As a sophomore, Boesky won the school’s Craig trophy as outstanding wrestler.
Boesky often used wrestling analogies to describe his work as an arbitrageur. “Wrestling and arbitrage are both solitary sports in which you live or die by your deeds, and you do it very visibly,” he told reporter Connie Bruck in a 1984 Atlantic Monthly interview. In wrestling he also found a metaphor for life. “There are times when I really feel like dropping, but I don’t, and that kind of summoning up, I think, is what I learned [from wrestling]. . . . There are plenty of opportunities in life to be beaten down. People feel beaten, demolished, demoralized, and they give way to it. I don’t.”
When Boesky chose a corporate logo for his new arbitrage operation, he had engravers copy his Cranbrook wrestling medal, showing two classical Greek men, nude, in a wrestling hold. It became the symbol for Ivan F. Boesky Corp., and Boesky was immensely proud of it. Not everyone shared his enthusiasm. “It looked like something from Caesars Palace,” was one employee’s comment.
After Cranbrook, Boesky transferred to inner-city Mumford High (immortalized by Eddie Murphy in Beverly Hills Cop). He never graduated from college. He did course work at Wayne State University in Detroit, the University of Michigan, and Eastern Michigan College, but he left for Iran, partly to be near his friend Wekili, just before graduating. Exactly what Boesky did in Iran remains a mystery. He later testified that he worked for the U.S. Information Agency, teaching English to Iranians. But USIA personnel records for the relevant period make no mention of any Ivan Boesky. Boesky told Siegel in one of their early conversations that he had worked in Iran as an undercover agent for the CIA.
After returning from Iran, Boesky enrolled at Detroit College of Law, a low-prestige law school that didn’t require a college degree for admission. He graduated five years later, in 1964, after twice dropping out. When Boesky was 23, his father made him a partner in the Brass Rails. Boesky was rejected by all the law firms he applied to for a job.
Boesky’s desultory record made it all the more surprising that he caught the eye of Seema Silberstein, whose father, Ben, was a wealthy Detroit real estate developer. But colleagues say it was Seema who fell in love with and tracked after Boesky after meeting him in June 1960. A relative of hers, a federal district court judge, hired him for a one-year clerkship. Boesky and Seema were married soon after and had their first child, Billy. When a Cranbrook wrestling teammate working at Bear, Stearns in New York told Boesky about arbitrage, he decided to make his fortune on Wall Street. Colleagues recall Boesky’s feeling that Detroit was too small and confined for his ambitions.
Boesky’s father-in-law installed Ivan and Seema in an elegant Park Avenue apartment. Boesky landed a job as a trainee at L. F. Rothschild that lasted a year. He moved to First Manhattan, getting his first taste of real arbitrage trading, then shifted to Kalb Voorhis. He promptly lost $20,000 in a single position and was fired. Boesky was contemptuous of a firm that put any store in the loss of such a paltry sum. After a brief period of unemployment and a foray into venture capital, he joined a small member firm of the New York Stock Exchange, Edwards & Hanly. Remarkably, given his employment history, limited experience, and track record, Edwards & Hanly gave Boesky carte blanche to establish and run an arbitrage department.
Boesky made a splash in the small world of arbitrage almost immediately. Using maximum leverage, buying on margin constantly, he managed to convert Edwards & Hanly’s modest capital into $1 million and even $2 million positions, large enough to actually move individual stock prices from time to time. He was considered audacious and bold. Once, for selling stock short that he hadn’t actually borrowed prior to the sale (and thus further boosting his leverage), he was sanctioned by the SEC and fined $10,000. Some of Boesky’s tactics contributed to the demise of Edwards & Hanly. By 1975, the firm was bankrupt.
Tired of begging for a position at a prestige firm, Boesky decided to open his own operation, devoted primarily to arbitrage. He stunned his fellow arbs by actually taking out advertisements in The Wall Street Journal, seeking investors and extolling the profit potential in arbitrage—the last thing members of the “club” wanted others focusing on, fearful that it would attract more competition. Boesky boldly allocated just 55% of the operation’s profits to the investors, keeping 45% for himself. He did, however, assign investors 95% of any losses. He didn’t attract enough capital to meet his ambitions. It was his wife’s family’s money that gave him enough to go forward.
From the first day of Ivan F. Boesky Co. in 1975, Boesky arrived at work by limousine. If he needed something fast, he wouldn’t hesitate to pay private couriers. He dressed in what he deemed the image of the successful Wall Street financier: his signature three-piece black suit, starched white shirt, and gold chain dangling from the vest pocket. It looked like a Phi Beta Kappa key.
Boesky didn’t waste money on the firm itself. It was housed in a single room in an aging Whitehall Street office building. The room was so small that a stock exchange auditor ordered Boesky to move into larger quarters. He hated his employees to leave their desks during lunch, so he picked up the tab for lunch orders delivered to the office, imposing a $5-per-person limit.
One of his first employees was an accountant hired to manage the firm’s “back office.” The son of an Armenian immigrant, Setrag Mooradian had worked at Oppenheim, Appel, & Dixon, known in the arbitrage community as OAD. The firm, more than any other, specialized in arbitrage accounting. Though he didn’t tell Boesky, Mooradian had been severely sanctioned for violating capital requirements. It had made it hard for him to get a job, and he was always grateful to Boesky for hiring him.
Boesky told Mooradian to be at work every morning promptly at 7 A.M., when his own limousine would pull up to the building entrance. If Boesky wasn’t going to be in the office, he’d call in at 7:01; if no one answered, he’d fly into a rage. Once, years later, Boesky called in when a fire drill was in progress. No one answered the phone immediately. The next day a memo appeared on everyone’s desk. “Yesterday, at 3:15 P.M., I called in,” the memo began. “My phone rang 23 times. I understand there was a fire alarm. Certainly, I don’t want you to risk your lives. But I extend my appreciation to those of you who stayed behind.”
Boesky disliked the idea that his employees might take a day off. He never came into the office the Friday after Thanksgiving, when most Manhattan offices are reduced to skeleton staffs. But no one else was allowed the day off. Boesky checked attendance by calling so many times—in some cases, as many as 10 times to a single employee—that the others in the office figured Boesky might as well have come to work. He also refused to hand out paychecks until after 3 P.M. on Fridays, after banks had closed. When employees complained, he explained that he didn’t want the “disruption” of his staff dashing out to cash and deposit checks in the middle of the day. But they suspected he wanted the extra interest that would accumulate over the weekend.
Almost from the beginning, Boesky screamed at everyone regularly. After several such incidents, Mooradian asked Boesky to stop yelling. “I’m the boss,” Boesky replied. “I’m allowed to yell.” Boesky expected Mooradian to work routinely until 9 or 10 P.M. Once his wife found him still up at 5:30 A.M. trying to complete work Boesky had demanded. “He can’t keep this up,” Mooradian told her. But as the years went by, Boesky seemed to need less and less sleep and became even more demanding. A favorite tactic was to call Mooradian with a complex question. “I’ll get back to you,” Mooradian woul
d answer. “I’ll hold,” Boesky would reply.
Boesky sometimes spent the workday at his estate. Near the “Wall Street” sign he had placed on a lamppost on one of the roads was an office complex with secretaries and all the electronic market and communications gear he needed to stay in constant touch with the market. “Can you believe that husband of mine?” Seema asked Mooradian. “He always dresses in a business suit to go to the office on his own property.”
One morning Boesky’s employees arrived at the office to discover a Wierton terrier puppy scampering about the premises. Boesky had bought the pet as a surprise for Seema, but she had banned the terrier from the house. So Boesky said the dog would live at the office, and his chauffeur, Johnny Ray, could take care of it at night and on weekends. Soon Boesky and the puppy were inseparable. He even took the dog along to meetings with investors.
Just a week later, Lessman and others heard a shriek from Boesky’s office. They rushed in to discover a stricken look on Boesky’s face. The puppy looked confused. In a pile right in front of Boesky’s desk, on his spotless beige carpeting, the dog had demonstrated convincingly that it wasn’t yet housebroken. Boesky wiped up the mess. No one ever saw the dog again.
Boesky had other idiosyncrasies, namely, his eating habits. Some days it seemed as though he ate nothing, as if he were still training for a wrestling weigh-in. For breakfast, he liked to order a single croissant. He would pick at it, then eat a single flake. One colleague recalls that once, when Boesky took a normal bite, he said, “Ivan, you little pig.” Boesky looked startled and put it down.
Boesky often invited prospective investors in his partnership for lunch in the private dining room in his office. One afternoon Meshulam Riklis, the chairman of Rapid-American Corporation who bankrolled a film career for his much younger wife, Pia Zadora, was scheduled for lunch. Boesky had his people call ahead to find out what Riklis liked to eat, then ordered a lavish spread from the 21 Club. At the table, Boesky fretted that Riklis didn’t seem to be enjoying the food.
“I’m due at the gym in a few hours,” Riklis explained. “I have to work out with a personal trainer.”
“Why work out?” Boesky asked. “Relax. Eat more.”
Riklis paused. “Ivan, you have no idea what it’s like to be married to a younger woman.” But Riklis proceeded to eat merrily, and he invested $5 million in Boesky’s partnership. Boesky ate a single grape.
As he had vowed, Boesky “retired” in early 1981, liquidating his interest in Ivan F. Boesky Co. Having failed to persuade any of his senior employees to take over (most had been fired or quit), he had recruited an arbitrageur from Morgan Stanley, Steve Royce, to take over the entity, renamed Bedford Partners. The largest investor was Seema, who rolled about $8 million of her share of Boesky Co. into the reconstituted partnership. Though Boesky had none of his own money in Bedford, he was on the phone to Royce every day, usually six to eight times, making investment decisions as though he were still in charge.
Boesky set about almost immediately raising money for a new arbitrage partnership, Ivan F. Boesky Corp. As a corporation rather than a limited partnership, the new entity had a more complicated ownership structure, divided between common stockholders and preferred stockholders. Investors received mostly preferred stock, and the profits were allocated heavily to the common stockholders (Boesky, principally) and the losses to the preferred holders.
Boesky enlisted Lessman, one of the few holdover employees from the earlier company, in his endless quest for investors’ capital. Boesky’s limousine took them to countless meetings with wealthy individuals and people who represented deep pockets, seeking investments of a minimum $2 million. In addition to the projected returns based on investors’ performance in the prior partnership, Boesky offered a unique advantage: direct access to him. He promised to pass on market intelligence that the investors would be free to use in their own portfolios.
The campaign wasn’t all that successful, despite the impressive rate of return Boesky had amassed for his previous investors. One day Lessman dared to suggest that the allocation of profits and losses turned potential investors off. “The deal stinks,” Lessman said. Boesky glared.
Lessman also tried to invest some of his own money in the new corporation, telling Boesky that he had recently inherited about $500,000 and wanted to put it in the company. Boesky offered him the same stiff terms he was offering other outsiders. “But I’m working for you,” Lessman protested. “Why can’t I earn my share of the profits?”
Boesky’s face tightened, his voice changed. “I don’t need your lousy half million,” he said icily.
“Then why do you need my twenty-five percent of the profits?” Lessman rejoined.
“Get out!” Boesky screamed, chasing Lessman out of the office and slamming the door with a crash.
In the end, the corporation was launched in 1981 with less than $40 million, far less than Boesky had hoped for. Boesky, Lessman, now head of research, and Michael Davidoff, a trader Boesky hired away from Bedford Partners, set up shop in an unused partner’s office at the Manhattan law firm of Fried, Frank, Harris, Shriver & Jacobson, where Boesky’s principal lawyer, Stephen Fraidin, was a partner. Even in those close quarters, Boesky liked to boast that no one knew everything about his operation except himself. He deliberately kept even his own employees off guard.
Lessman was instructed to answer Royce’s calls and share his research with him. Late one evening, Royce called and said, “Ivan wants your position” in a particular stock. Lessman pulled it up on his computer screen and told Royce. Boesky called Lessman soon after, and Lessman mentioned in passing that Royce had called and he’d disclosed the position. There was silence on the line. Then Ivan screamed, “I should fire you for this. Don’t ever give away a position again.”
“I thought Royce was in the firm,” Lessman answered as Boesky slammed down the receiver.
Soon after, Royce called Lessman again one night seeking a stock position. Lessman refused, saying he’d been ordered by Boesky not to talk. The phone rang again. This time Boesky reamed out Lessman for failing to answer Royce’s question. Finally Royce called asking for Boesky’s position in Marathon Oil, then a potential takeover target; this was highly sensitive information. Lessman, anxious not to be caught in the middle, gave Royce an answer, but greatly understated the true position.
Then Boesky called from a dinner party. Lessman proudly told Boesky that Royce had pumped him for information, and that he’d deliberately misled him. “You asshole!” Boesky shouted. “You’re making me out to be a liar!” Boesky himself, it turned out, had given Royce inconsistent but equally misleading information. Lessman’s head was spinning. Why would Boesky lie to someone managing his own wife’s money?
Soon after, Lessman had to call Boesky one evening at home in Bedford, and Boesky’s eldest son, Billy, answered.
“It’s Lance,” Lessman said in a weary voice. “Your dad’s really beating up on me.”
Billy’s reply made a deep impression on Lessman. “Seriously understand about my father,” Billy said in a somber tone. “He is stark raving mad.”
I. W. (“Tubby”) Burnham II led his new recruit, corporate finance head Frederick H. Joseph, through the crowded trading floor of Drexel Burnham & Co. on Joseph’s first day of work in 1974. There was someone, Burnham explained, that he wanted Joseph to meet right away, someone who just might help Joseph realize his outsize ambitions for his new firm.
Joseph, then 41 years old, a well-built former amateur boxer with graying hair, had landed the Drexel corporate finance job with an audacious claim: “Give me fifteen years,” he had said. “I’ll give you a firm as powerful and successful as Goldman, Sachs.”
The proposition then seemed ludicrous, calling for nothing less than a revolution against the status quo on Wall Street. In 1974 Goldman, Sachs was at Wall Street’s pinnacle. That year, Drexel Burnham had total revenues of just $1.2 million. Its capital was thin. The stock market was in a slump. And de
spite the illustrious Drexel name, Drexel Burnham barely ranked as a second-class citizen on Wall Street.
Drexel Burnham was essentially Burnham & Co., a retail-sales-oriented brokerage firm founded in 1935 by Tubby Burnham, a grandson of the founder of the I. W. Harper distillery, and a few remnants of old-line Drexel Firestone, which traced its lineage from the illustrious Philadelphia Drexel family and the unabashedly anti-Semitic J. P. Morgan empire.
In 1971, Burnham & Co. merged with Drexel—an odd match. Burnham was mostly Jewish, filled with rough-and-tumble traders who survived on their selling skills. Drexel, by contrast, had an old-line aversion to hard sales tactics and a steadily dwindling roster of corporate clients who increasingly opted for firms with more aggressive distribution networks. Drexel was tottering, surviving largely on its reputation and its historical status as a major-bracket firm. Indeed, Tubby Burnham sought out Drexel as a merger partner primarily to hoist his company out of the submajor bracket and attract more underwriting work.
When Burnham visited the chairmen of Goldman, Sachs and Morgan Stanley, the eminent firms whose blessing and goodwill the merged firm would need to survive in the still-clubby world of Wall Street, they gave their approval on one condition: The venerable Drexel name had to come first, regardless of the true balance of power in the firm. Hence Drexel Burnham & Co. was born.
The survivors of the two firms still mostly shunned one another, even now, three years after the merger. As they walked through the firm, Burnham told Joseph that when he first met the head of Drexel at the time of the merger, he’d asked how many of the firm’s more than 200 employees were Jews. He was told that there were a total of three. One, Burnham said, was the man he wanted Joseph to meet: Michael Milken.
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