“Ivan Boesky is not only guilty of simple insider trading, but the scope of his offenses is substantially enlarged, as he himself concedes, by engaging in many transactions at the behest of others on a scale so substantial as to represent a systemic problem in the financial market. On the other hand, as the United States Attorney’s sentencing memorandum points out: ‘Mr. Boesky’s cooperation with the government has been unprecedented. Not since the legislative hearings leading to the passage of the 1933 and 1934 Securities Act has the government learned so much at one time about securities law violations.’”
In the 1980s, economic crises and scandals, coupled with a new ethos that challenged assumptions about the need for increased regulation, created problems for the SEC. Members of Congress, responding to increasing anxiety among their constituencies, continually demanded more from the SEC. While the SEC never held an absolute monopoly on informational expertise, Congressional expertise began to shift the view away from SEC dominance. While the SEC continued to be a significant player in advising Congress on securities legislation, other groups, whether they were independent ad hoc committees of private experts or individual Representatives and Senators, began to aggressively assert their own role in drafting legislation.
During the early 1980s, the SEC prosecuted a spate of insider trading cases using its existing statutory authority. Initially, the SEC brought insider trading cases against corporate employees, attorneys, securities industry professionals and others who earned relatively small amounts of illegal profits. Those prosecutions failed to capture the public’s and Congress’s attention. 18
All of that changed with the stunning revelations about the prosecution of Dennis Levine, who was forced to disgorge millions in profits, and even more dramatically, with the SEC’s announcement of the settlement of its enforcement action against Ivan Boesky. The announcement that Boesky agreed to pay the equivalent of $100 million in cash and assets and accept other penalties, in addition to assisting with even more SEC investigations, shook public confidence in the fairness of the market system. 19 In 1987, reacting to the news that insiders could reap immense profits from information not available to ordinary investors, Congress held hearings to address the corrosive role insider trading played in the national markets.
(18) Stuart J. Kaswell, “An Insider’s View of the Insider Trading and Securities Fraud Enforcement Act of 1988,” 45 The Business Lawyer 1 (November 1989): 145-180.
(19) James B. Stewart, Den of Thieves (Simon and Schuster: New York, 1991).
Paul Gonson began working at the SEC in 1961 and held a number of positions during his 37-year career at the agency. He started out in the Division of Corporate Regulation, then transferred in 1967 to the Office of General Counsel where he became primarily an appellate attorney. When David Ferber retired from his post as the Solicitor in 1979, Gonson was appointed to take his place. During the next 20 years, he worked on a number of enforcement cases, primarily insider trading, many of which he argued before the Supreme Court. In 1998, he retired from the SEC and joined the firm of Kirpatrick & Lockhart.
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