Personality Led to the Rise and Fall of Deal Maker

Salim B. (Sandy) Lewis embodied the brash Wall Street professionals who rose to prominence in the 1980s riding takeover mania and the bull market. But like Ivan F. Boesky, Dennis B. Levine and a few others who rode this heady wave, Lewis’ exuberance ultimately led to his downfall.

Lewis, 50, who pleaded guilty on Wednesday to three counts of securities law violations, was both a successful deal maker and trader.

He was a preeminent player in the speculative game known as risk arbitrage. His firm, S. B. Lewis & Co., speculated on mergers, aggressively buying stock in companies that were targets of takeover offers, making profits if the stock prices rose further but losing if the deals and stock prices collapsed.

“He had a reputation of being a very smart arbitrager,” said Frank E. Baxter, president and chief executive of Jefferies & Co., a Los Angeles brokerage firm that executed trades for Lewis, including the ones involved in his guilty plea.

Involved in Many Big Deals

But unlike other pure “arbs” such as Boesky who merely speculated on stocks and were often seen as an annoyance in corporate boardrooms, Lewis also was a deal maker whose counsel was sought by several prominent corporate chieftains. His firm collected hefty fees advising corporations on mergers, and he helped arrange several.

Most prominently, he helped arrange American Express’ 1981 acquisition of Shearson Loeb Rhoades, earning his firm a $3.5-million fee and helping speed the trend of large financial service firms buying Wall Street brokerages. He also helped negotiate American Express’ purchase of Investors Diversified Services, a Minneapolis financial advisory firm.

Lewis’ success was not entirely of his own doing. He undoubtedly was helped by the reputation and power of his father, Salim L. (Cy) Lewis, a Wall Street legend who turned Bear, Stearns & Co. into an aggressive Wall Street trading house.

Noteworthy Stints

After attending the University of Chicago and working for a year as a school counselor, the younger Lewis was lured to Wall Street and almost immediately began to make his own mark.

In the 1960s, he helped Salomon Bros., then largely a bond trading house, break into stock trading. He also served noteworthy stints at Merrill Lynch, Dean Witter and other firms, but his intensity and abrasiveness ultimately led to his quitting or being fired by several firms.

In 1977, Lewis became a special adviser to Securities and Exchange Commission Chairman Harold M. Williams. After leaving the SEC, he worked for a time with Boesky before forming his own firm in 1980, aided by a $4-million capital infusion from American Express.

Other investors in his fledgling firm included former Treasury Secretary William E. Simon, Limited Inc. Chairman Leslie Wexner and two former SEC chairmen, Roderick Hills and Williams.

In his arbitrage activities, Lewis is believed to have made huge profits. To be successful at arbitrage requires getting good information about the prospects that a takeover would be completed, and Lewis was meticulous and aggressive, often spending hours on the phone seeking tips or milking sources.

Meanwhile, Lewis also continued to advise on takeovers--helping, for example, the Limited, a Columbus, Ohio, retailer, acquire the Lane Bryant apparel chain.

But it was his close association with American Express and its chairman, James D. Robinson III, that appears to be pivotal in his guilty plea. Whether that friendship led Lewis to engage in illegal stock manipulation remains unclear.

Federal prosecutors allege that Lewis bought stock of Fireman’s Fund Corp. in 1986 to drive up the price and thus help American Express sell part of its Fireman’s Fund stake at a higher profit.

Federal prosecutors allege that Lewis requested two unidentified Jefferies employees to buy more than 400,000 shares of Fireman’s Fund on May 8, 1986, in an attempt to drive its price up to $38 a share, substantially above its level at the time.

Prosecutors also allege that Lewis promised to reimburse Jefferies & Co. for any losses and that he hid his role through phony records.

One day later, American Express announced that it would sell 8 million shares of Fireman’s Fund at $41.50 a share. It eventually made a profit of $88 million from the sale.

Colleagues Shocked

Lewis’ downfall began when Boyd L. Jefferies, founder and former chief of Jefferies, pleaded guilty to stock fraud in 1987 and confessed to his own role in the alleged scheme.

Close friends and colleagues then and now have expressed surprise that Lewis engaged in any wrongdoing.

“I would be shocked if Sandy did anything illegal,” American Express chief Robinson said in 1987 when word began leaking out that Lewis was under investigation.

Robinson was on vacation Wednesday and could not be reached for comment. But a statement issued Wednesday by American Express, which has not been accused of any wrongdoing, called Lewis “a man of integrity and high professional competence.”