Top Wall St. Speculator Pleads Guilty to 3 Counts : Lewis Admits ’86 Scheme Was ‘Wrong’

NEW YORK —  Salim B. (Sandy) Lewis, for years one of Wall Street’s brightest stars, pleaded guilty Wednesday to three federal felony counts stemming from a 1986 scheme to drive up the price of Fireman’s Fund Corp. stock.

Lewis, a dazzling deal maker and stock speculator, pleaded guilty in U.S. District Court in Manhattan to a single “margin,” or credit, violation; a record-keeping infraction and one count of stock manipulation in the May, 1986, episode. Prosecutors have alleged that the manipulation was designed to lift Fireman’s Fund stock just before a public stock offering that might otherwise have exposed American Express Co. to heavy losses.

American Express owned the Fireman’s Fund stock that was offered for sale, as well as a stake in Lewis’ company.

The counts carry a maximum sentence of 15 years imprisonment and a possible fine of up to $2.75 million. Lewis’ company, S. B. Lewis & Co., pleaded guilty to two felony counts--a margin violation and keeping false books and records. Lewis was indicted last November on 22 counts, a figure that was later reduced to 15.

Pledged to Reimburse Jefferies

In a 15-minute hearing before U.S. District Judge Kimba Wood, Lewis acknowledged that he had done “wrong” but contended that his intention had been only to protect American Express from the harm that might have been done by stock traders called “short sellers,” who can profit from falling stock prices. Lewis, 50, also tried to emphasize the culpability of Boyd L. Jefferies, founder of the Los Angeles investment firm Jefferies & Co. and the government’s prime witness against him.

Jefferies pleaded guilty to securities law violations in May, 1987, and has since cooperated with prosecutors in building other cases.

Until the practice was recently barred, short sellers have tried to profit from stock offerings by driving down the price of the stock before the offering was made. The intent was to sell borrowed shares of higher-priced stock before the offering, then profit by repaying them with the lower-priced shares available in the offering.

Lewis said he spoke to Jefferies on May 8, 1986, the day before the offering, and both of them agreed that something should be done to frustrate the short sellers. Lewis acknowledged that he suggested that Jefferies secretly arrange to push up the price of the shares by making large purchases of the stock later that day.

He also pledged to reimburse Jefferies for any losses he might incur.

Lewis admitted that, under the arrangement, Jefferies gave him 100% credit for all the stock Jefferies would purchase. Such an arrangement is a violation of margin rules, which limit the amount that investors can borrow.

Lewis acknowledged that he repaid Jefferies by having Jefferies bill another firm, R. D. Smith & Co., for $150,000, and then paying Smith a phony “advisory fee” of that amount.

Lewis contended that it was Jefferies, rather than he, who suggested pushing up the price of Fireman’s Fund stock by 25 cents a share to $38 by the close of the trading session.

But prosecutors took exception to that contention. Assistant U.S. Atty. Anne C. Ryans said prosecutors would present evidence at the sentencing that Lewis did suggest the $38 price as a goal and that, contrary to the statement of his attorney, Stanley B. Arkin, Lewis did intend that the stock purchases would affect the offering price.

American Express, which was not accused of wrongdoing in the episode, said in a statement Wednesday that it was “saddened” by the development, adding that it had found Lewis to be a man of “integrity and high professional competence.” The company said it had conducted its own investigation of the manipulation and found that none of its employees were involved.

Lewis has had a long business relationship with American Express and is personally close to several of its officials, including Chief Executive James D. Robinson III. Lewis helped arranged American Express’ 1981 acquisition of the Shearson Loeb Rhoads investment firm, now part of American Express’ Shearson Lehman Hutton brokerage unit.

The Securities and Exchange Commission, which will decide whether Lewis will be allowed to return to the securities industry, has so far brought no charges against him, according to spokeswoman Mary McCue. Lewis remains a managing director of S. B. Lewis & Co., which has continued its normal conduct of business since Lewis’ indictment.

Spared One Indignity

Significantly for the Wall Street corruption probe, Lewis’ plea agreement does not pledge his cooperation with prosecutors in developing cases. The government’s strategy has been to enlist the help of defendants to track down the wrongdoing of others on Wall Street.

Lewis and his attorney have taken a hard line on the charges since they were brought. As other prominent industry figures offered testimonials to Lewis’ character last fall, Arkin was quoted as calling the indictment “irresponsible ruthlessness on the part of the U.S. Attorney’s Office.” Arkin declined comment Wednesday.

The once-powerful arbitrager was spared one indignity. The TV camera crews that have thronged around other Wall Street defendants were occupied Wednesday waiting for a verdict in the tax evasion trial of hotelier Leona Helmsley, and they missed Lewis’ departure.

Prosecutors and the defense will meet Sept. 25 to choose a date for the sentencing.