Monday, June 26, 2017

Ivan Boesky Went to Jail When He Was Caught "Parking"

One of the most serious allegations against Michael Arlen Davis relating to his systematic violations of Federal securities laws is his "parking" of shares with Rudolph Steiner Foundation (RSF).  RSF is Cyanotech's second largest shareholder with a current 16.5% stake - and it never paid a cent for any of those shares.  Every single share of Cyanotech stock was paid for and placed into RSF's hands by Michael Arlen Davis.  It is believed that Michael Arlen Davis "parked" shares with RSF in order to avoid the ownership limitations imposed by Section 4943 of the Internal Revenue Code.

The most famous example of enforcement of Federal securities laws against "parking" came in the case of Ivan Boesky.  Here is an excerpt on that case from a   law school textbook:


https://en.wikipedia.org/wiki/Ivan_Boesky
Click on image for more info.
"Stock Parking as a Violation of 13(d). The "parking of shares" can give rise to a violation of §13(d). In the typical stock parking arrangement, one trader will agree to buy shares of a publicly traded company on the open market and to hold these shares for the benefit of another trader, whose identity can then be concealed from other market participants...These arrangements to "park shares" in the account of another trading professional allow the beneficial owner to carve up ownership of the company's stock in order to avoid the disclosure requirements of §13(d)...Parking violations were made famous in the 1980s as a result of the SEC's prosecution of Ivan Boesky; as described in more detail in the next chapter, this investigation ultimately led to the downfall of Michael Milken and his firm, Drexel Burnham Lambert."

A 1998 New York Times article reporting on the government's case against Boesky explained how Boesky (in the same manner as Michael A. Davis with RSF) used others to conceal the true extent of his stock holdings in companies

"People familiar with the case said yesterday that the investigation was tied to a case last year in which Michael Davidoff, former head trader at Seemala, pleaded guilty to securities fraud. In his plea, Mr. Davidoff said he had reached a ''secret agreement'' with officials at Seligmann Harris to ''park'' stocks. Stock parking involves secretly transferring securities to another entity to evade restrictions on holdings."

A 1997 Washington Post article provided further details on the scheme and the illegal practice of "parking": 

"Stock parking is a technique used to conceal ownership of shares. By parking -- or placing shares with others -- Davidoff helped Boesky conceal that he was buying stock."

As a result of his illegal activities, Boesky received a prison sentence of  3 1⁄2 years and was fined $100 million. Boesky was permanently barred from working in securities.  The full story was detailed in James B. Stewart's book Den of Thieves.  Click on image below for more information:

https://www.amazon.com/Den-Thieves-James-B-Stewart/dp/067179227X