Ivan Boesky is the son of Russian immigrants who grew up to be one of the most financially successful stock traders in the country. A college drop-out who nevertheless succeeded in earning a law degree, Boesky moved from his native Detroit, Michigan, to New York City with the goal of working his way up the ladder of the Wall Street financial services industry. Specializing in the securities business, Boesky, using money he borrowed from his wife’s wealthy parents, started his own company, Ivan Boesky and Company. Boesky focused his energy on what is known as “arbitrage,” a highly-intense process of buying a selling securities in rapid succession in order to profit off of price differentials across markets. While arbitragers who complied with federal securities regulations were able to make large sums of money, Boesky’s greed compelled him to engage in large-scale trades utilizing “insider” information; in other words, he and others cheated the process by acquiring information known only to a small number of people inside the corporations in question in order to know when exactly would be the best time to buy or sell stocks or securities. In a legal process, the information used to make such decisions is known or available to the public. Insider trading, however, involves the making of decisions using information that is secret, thereby making the use of that information illegal.
As noted, Boesky emerged during the 1980s as one of the most successful arbitragers in the country. His reputation as a workaholic was buttressed by his decision to teach part time at Columbia University while also writing a book that was published in 1985 titled Merger Mania: Arbitrage: Wall Street’s Best Kept Money-Making Secret. Boesky became best known, however, when film director/screenwriter Oliver Stone made a film based on Boesky called “Wall Street.” In his film, Stone has the character modeled on Boesky, Gordon Gekko, deliver a speech modeled on a speech Boesky gave in 1986 at the University of California, Berkeley, School of Business Administration in which Boesky defended “greed”:
“Greed is all right . . . I think greed is healthy. You can be greedy and still feel good about yourself.”
Boesky’s speech, adapted by Stone and delivered in the film by Gordon Gekko, became a mantra of the anti-Wall Street fervor that took root when Boesky and his associates, most prominently Michael Milken, were indicted for insider trading and ultimately convicted. Boesky cooperated with federal investigators and was fined $100 million and sentenced to three years in prison, ultimately serving 22 months before being paroled.
The ramifications of Boesky’s activities went well beyond his own situation. He was at the center of what was known as “the junk bond” industry involving high-yield/high-risk bonds. Bonds are rated by private agencies like Standard and Poor’s for risk, with AAA being the most favorable rating, followed by AA, A, BBB, BB, B, CCC, CC, and C. Junk bonds such as those handled by Boesky were generally BB, meaning they were not well-respected by the financial services industries and carried a relatively high degree of risk. Boesky’s downfall brought with it the decline of the junk bond industry, although it survives to this day in less prominent fashion. At its peak, however, during the late 1980s, junk bonds were valued at as much as $190 billion. The scandal involving Boesky, Milken and others resulted in much of that value disappearing, and with it a lot of investment portfolios.