Serving His Clients All Too Well

By Stephen Koepp

The identity of the financial community's latest fallen wizard, Boyd Jefferies, may have come as less than a rude shock, since the prominent Los Angeles stock trader was known to have dealt heavily with Arbitrager Ivan Boesky. But on Wall Street, where scandal is becoming almost routine, Jefferies' announcement last week that he would plead guilty to two criminal charges created a whole new sense of dread. For Jefferies was not charged with insider trading, as a dozen others were, but with other rule-bending practices that have become commonly tolerated. The case against Jefferies, based partly on tips provided by the chastened Boesky, demonstrated that the insider- trading scandal is leading Government investigators to a wider range of illicit stock schemes.

. The case puts out of commission one of the main characters in Wall Street's takeover whirl. Jefferies' prosperous firm, which he started in 1962, specializes in trading huge blocks of stock outside the New York and American exchanges. His deals have often helped corporate takeover artists to amass their holdings. Last week Jefferies, 56, resigned as chairman of his company, agreed to stay out of the securities business for at least five years and said he would plead guilty to two felony counts that could bring him as much as ten years in prison. Jefferies was the only individual who was accused. Michael Singer, a former senior vice president who had been questioned in the case, was not charged.

The aggressive Jefferies built a reputation for going to extraordinary lengths for his clients. In one of the charges, the Government accuses Jefferies of purporting to own $56 million worth of stocks that had actually been bought by a client, Boesky. In this illegal practice, called parking, Jefferies was allegedly holding the stock to cover up the identity of Boesky as the real owner. The scheme enabled Boesky to control more stock than was permissible under the Government regulation.

Perhaps the more alarming charge is that Jefferies helped a customer, unnamed in the Securities and Exchange Commission's probe, manipulate the price of a public stock offering. The stock, also unnamed but widely believed to be Fireman's Fund, was languishing last May in the days just before the insurance company's owner, American Express, was planning to offer more of the shares to the public. Jefferies is accused of briefly boosting the market price -- and thus illegally rigging the price of the new shares -- by buying blocks of Fireman's stock right before the offering. The New York Times, quoting lawyers close to the investigation, reported that Jefferies bought the stock at the request of Salim Lewis, a financier who has had business dealings with American Express chairman James Robinson. The SEC issued subpoenas to American Express and the two investment firms that managed the offering, Shearson Lehman Bros., which is an American Express subsidiary, and Salomon Brothers. None were accused of any wrongdoing. Robinson told TIME that he had also been subpoenaed personally, but said, "I absolutely and unequivocally deny any wrongdoing by me and, as far as we know, by anyone at American Express."

Potential criminal charges were not the only threat growing out of Wall ^ Street's current scandals. Last week 40 of the partners who invested in Boesky's arbitrage firm filed the first lawsuit to seek damages from both the arbitrager and his investment firm, Drexel Burnham Lambert, because of its links to Boesky's ventures. One reason for naming Drexel: the investment firm has almost $1.9 billion in capital, while Boesky's net worth has reportedly fallen below $1 million.

With reporting by Frederick Ungeheuer/New York and David S. Wilson/Los Angeles