Spinoff of Boesky Case : Jefferies’ Testimony Faces Test in Trial of GAF Corp.

NEW YORK —  Jury selection began Monday in the stock manipulation trial of GAF Corp. and its vice chairman, James T. Sherwin.

The case is the first among the investigations spawned by the Ivan F. Boesky insider trading scandal to actually come to trial. It is also being billed as an important test of the evidence that prosecutors obtained from Boyd L. Jefferies, former chairman of the Los Angeles-based brokerage Jefferies & Co.

In a 10-count indictment, handed up in July, GAF and Sherwin, 54, were accused of arranging with Jefferies & Co. to illegally boost the market price of Union Carbide stock in 1986. The indictment charges that the alleged manipulation was meant to help GAF get a good price for big blocks of Union Carbide stock that it was planning to sell after GAF abandoned a takeover attempt of the company.

GAF’s lawyers are expected to argue that Jefferies provided prosecutors with inaccurate information to help him obtain lenient treatment. Jefferies, implicated by Boesky in insider trading and hiding the ownership of stock, was permitted to plead guilty to two felony counts in exchange for his agreement to cooperate with the government. He is awaiting sentencing.

Defense lawyers are also expected to challenge the charge that there was a deliberate manipulation, since 10 days elapsed between the time Jefferies allegedly purchased Union Carbide stock to boost its price and the time GAF sold off its Union Carbide shares.

Jefferies has provided prosecutors with information in other cases, including one that led to the indictment in November of Salim B. (Sandy) Lewis, a well-known Wall Street takeover speculator.

Jury selection in the GAF case is expected to last at least through Wednesday. The trial is expected to take about six weeks.

The other investigations launched as a result of Boesky’s cooperation with prosecutors either are pending or have resulted in guilty pleas. Boesky, who pleaded guilty to a single felony count, is serving a three-year prison sentence. He isn’t expected to testify in the GAF case.