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Boesky Subordinate Sentenced to Probation

June 26, 1991

NEW YORK (AP) _ Ivan F. Boesky’s chief trader, Michael Davidoff, was sentenced Wednesday to five years probation and a $50,000 fine for his role in Wall Street’s insider trading scandal.

Davidoff, who worked for the convicted speculator’s now-defunct Seemala Corp., was a key government witness against other participants, including junk-bond financier Michael Milken, since he pleaded guilty to one count of securities fraud in January 1987.

U.S. District Judge Charles E. Stewart said he considered Davidoff’s extensive cooperation in formulating the sentence, which also requires 300 hours of community service.

Prosecutors said Davidoff’s help was vital in obtaining guilty pleas by Milken and his Wall Street investment firm, Drexel Burnham Lambert Inc., and winning a conviction against John A. Mulheren Jr., a stock speculator who did illegal trades with Boesky.

Davidoff testified publicly at Milken’s presentencing hearing last fall and at Mulheren’s trial last year.

Assistant U.S. Attorney Scott Gilbert said his cooperation was especially remarkable because of a death threat that Mulheren made against Davidoff and Boesky. The incident occurred in 1988 when Mulheren learned he had been implicated and was arrested leaving his New Jersey home carrying a loaded assault rifle.

″It had lasting psychological consequences and made Mr. Davidoff’s task as a witness that much more difficult,″ Gilbert said. Charges involving the gun incident were later dropped and Mulheren’s lawyers said it was a result of his failure to take lithium prescribed to treat manic depression.

Davidoff, 47, who now operates a frozen yogurt shop in New Jersey, apologized to the judge for his crimes and asked for leniency.

He was among the first people to begin cooperating after Boesky agreed in November 1986 to plead guilty to one count of lying to federal investigators and pay $100 million in fines and restitution money.

Boesky’s revelations are generally regarded as the basis for what became Wall Street’s most embarassing scandal, which ensnared a number of prominent white collar professionalsi. His name has become synonymous with insider trading, the illicit practice of buying and selling securities based on non- public information.

Boesky was released from federal custody in April 1990 after serving two years of a three-year term.

Defense attorney Paul Rooney described Davidoff as a ″simple man″ with little education who worked his way up the ranks of Boesky’s organization from runner to head trader.

″He wound up working for the wrong man,″ Rooney said. ″He wound up being used by this man.″

Davidoff pleaded guilty to a charge that he made bogus securities trades through a London brokerage, Seligmann & Harris, to help Seemala evade laws requiring brokers to maintain minimum amounts of capital.

Prosecutors said his cooperation went much further than those transactions and included information about an agreement between Boesky and Drexel to make illegal trades.

″Because he participated in specific trades and in keeping track of the Drexel arrangement, Mr. Davidoff was particularly valuable in enabling the government to flesh out the details of Mr. Boesky’s revelations concerning that arrangement,″ prosecutors said in a presentencing memo.

Davidoff also was a witness against Milken, the former head of Drexel’s junk-bond division. Milken, who pleaded guilty to six felonies, is serving a 10-year prison term.

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