United States v. Mulheren

938 F.2d 364 (1991)

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Nature of the Case

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Facts

In 1985, a prominent arbitrageur and corporate raider, Ivan Boesky directed his companies to buy G & W stock, a security that both Icahn and Boesky believed to be 'significantly undervalued.' Boesky's companies accumulated 3.4 million shares representing approximately 4.9 percent of the outstanding G & W shares. According to Boesky, Icahn also had a 'position of magnitude.' On September 5, 1985, Boesky and Icahn met with Martin Davis, the chairman of G & W. At the meeting. Boesky expressed his interest in taking control of G & W through a leveraged buyout or, failing that, by increasing his position in G & W stock and securing seats on the G & W board of directors. Davis said he was not interested. At the October 1, 1985 meeting, which Icahn also attended, Boesky, stated that if Davis continued to reject Boesky's attempts at control, then G & W should buy-out his position at $45 per share. G & W was reducing the number of its outstanding shares through a repurchase program, but, the stock was trading below $45 per share. Davis stated that, although he would consider buying Boesky's shares, he could not immediately agree to a price. Icahn, for his part, indicated that he was not yet sure whether he would sell his G & W stock. D and Boesky also maintained a relationship of confidence and trust. The two had often shared market information and given each other trading tips. D asked Boesky what he thought of G & W and whether Icahn held a position in the stock. Boesky responded that he 'thought well' of G & W stock and that he thought Icahn did indeed own G & W stock. Boesky never told Mulheren about his meetings or telephone conversations with Davis because he considered the matter 'very confidential.' Reports in the August 19, 1985 issue of Business Week and the September 27, 1985 issue of the Wall Street Journal indicated that Boesky and Icahn each owned close to five percent of G & W and discussed the likelihood of a take-over of the company. D denied reading these reports and denied knowing whether Boesky and Icahn held positions in G & W. Davis met with D. D stated that he had a group of investors interested in knowing whether G & W would join them in acquiring CBS. D volunteered that he could be 'very helpful in monitoring the activities of Ivan Boesky. D eventually told Davis that he believed that Boesky did not own any G & W securities. D also said that he did not own any G & W stock either. When Davis and D met again on October 9, they spoke only about D's CBS proposal. At yet another encounter, Davis 'told Boesky he had no interest whatsoever in doing anything. Boesky then decided to contact his representative at Goldman, Sachs & Co. to arrange the sale of his massive block of stock to G & W. Boesky advised Goldman, Sachs that G & W common stock was not trading at $45 per share at the time, 'but that should it become 45,' he wanted to sell. After the close of the market on October 16, 1985, Boesky called Davis, offering to sell his block of shares back to G & W at $45 per share. Davis offered to buy but only at the 'last sale.' Boesky then called D and told D he would not pay more than 45 for G&W and it would be great if it traded at 45. D then placed an order to purchase 50,000 shares of G & W at the market price. The broker purchased 16,100 shares from market action but had to purchase the remaining 33,900 shares by himself at $ 44 7/8 per share. D purchased 25,000 more shares of G & W for no more than $ 45 per share. The broker executed the additional 25,000 share purchase at $45 per share. D caused the price to rise from $44 3/4 to $45. Boesky and Icahn sold their G & W stock -- 6,715,700 shares between them -- back to the company at $45 per share. Trading in G & W closed on the NYSE on October 17, 1985, at $43 5/8 per share. At the end of the day, D lost $ 64,406. D was the chief trader at and general partner of Jamie Securities Co., a registered broker-dealer. D was charged in a 42-count indictment alleging that he conspired to and did manipulate the price on the New York Stock Exchange of the common stock of Gulf & Western Industries, Inc. (G & W) in violation of 18 U.S.C. § 371, 15 U.S.C. § 78j(b) & 78ff and 18 U.S.C. § 2. P alleged that D purchased 75,000 shares of G & W common stock on October 17, 1985, for the purpose of raising the price thereof to $45 per share. P accused D of engaging in 'stock parking' transactions to assist the Seemala Corporation, a registered broker-dealer in evading tax and other regulatory requirements. The jury returned a partial verdict of guilt and D was sentenced to concurrent terms of one year and one day imprisonment, a $1,681,700 fine and a $200 special assessment. D appealed.