FMC Corp. v. Boesky
| Decision Date | 16 April 1987 |
| Docket Number | No. 86 C 9879.,86 C 9879. |
| Citation | 673 F. Supp. 242 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | FMC CORPORATION, Plaintiff, v. Ivan F. BOESKY; Boesky & Kinder Partners, L.P.; Ivan F. Boesky & Company, L.P.; IFB Managing Partnership, L.P.; Cambrian & General Securities, p.l.c.; Beverly Hills Hotel Corporation; Farnsworth and Hastings Limited; Northview Corporation; Seemala Partners, L.P.; Seemala Corporation; Ivan F. Boesky Corporation; Goldman, Sachs & Co.; David S. Brown; Shearson Lehman Brothers, Inc.; Ira B. Sokolow; Drexel Burnham Lambert Inc., and Dennis B. Levine, Defendants. |
Thomas P. Sullivan, Richard T. Franch, Barbara S. Steiner, Kaarina Salovaara, Jenner & Block, Chicago, Ill., for FMC Corp.
Howard D. Lieberman, H. Nicholas Berberian, Thomas M. Knepper, Peter B. Newton, Neal, Gerber & Eisenberg, Glen H. Kanwit, David B. Goroff, Hopkins & Sutter, R.L. Mitchell, P.V. Baugher, Adams, Fox, Adelstein & Rosen, Warren J. Marwedel, Tribler & Marwedel, P.C., Chicago, Ill., Eliot Lauer, Peter Fleming, Jr., Bernard V. Preziosik, Jr., Curtis, Mallett, Prevost, Colt & Mosle, New York City, Steven L. Bashwiner, Mary Ellen Hennessy, Katten, Muchini, Zavis, Pearl, Greenberg & Galler, Roger Pascal, Allan Horwich, Kevin D. Evans, Schiff, Hardin & Waite, James A. Klenk, Don H. Reuben, Margaret S. Determan, James K. Meguerian, Isham, Lincoln & Beale, Clarence J. Fleming, Thomas C. Elliott, Jr., McDougall, Hersh & Scott, Chicago, Ill., Mitchell H. Kaplan, Joshua T. Buchman, Choate, Hall & Stewart, Boston, Mass., Robert B. McCaw, Wilmer, Cutler & Pickering, Washington, D.C., Richard T. Sharp, Harry Frischer, Sidney H. Stein, Eric Schmidt, Stein, Zauderer, Ellenhorn, Frischer & Sharp, New York City, Derek W. Hunt, Troy, Casden & Gould, Los Angeles, Cal., Joel A. Haber, Floyd Babbitt, Fagel, Haber & Maragos, Jonathan G. Bunge, David E. Schaper, Monica L. Thompson, Keck, Mahin & Cate, Chicago, Ill., William E. Willis, pro hac vice, Robert J. Katz, Robert J. Lack, Pressly M. Millen, Sullivan & Cromwell, New York City, for defendants.
Anthony F. Phillips, Jeanne M. Luboja, Jonathan P. Wolfert, Zipoah J. Szydlo, Willkie Farr & Gallagher, Jonathan D. Bassett, Terri Jeligman, New York City, for Shearson Lehman Bros., Inc.
This case is one of the first private civil actions filed in the wake of the Securities and Exchange Commission's ("SEC") well-publicized charges that Ivan F. Boesky had been the recipient of wrongfully leaked insider information. The SEC charged that Boesky used the leaked corporate information to make millions of dollars in trading in the stock of at least seven corporations. One of these seven corporations, FMC Corporation ("FMC"), is the plaintiff in this action. FMC alleges that because of Boesky's illegal trading in its stock, the corporation has suffered damages of over $230 million in connection with its recent recapitalization. In sixteen counts, the complaint alleges that some or all of the defendants violated several federal securities laws, all four of the civil provisions of the Rackeeter Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(a), (b), (c) and (d), and various state common laws. All defendants contend that plaintiff lacks standing to sue them, and so they have filed motions to dismiss the complaint in its entirety. For the reasons that follow the court agrees and grants the motion.
FMC is a Delaware corporation with its principal place of business in Chicago. Its primary activities are manufacturing and mining. There are seventeen defendants named in the complaint, including Ivan F. Boesky ("Boesky"). Ten of the defendants are corporations and entities allegedly controlled by Boesky and are referred to in the complaint as the "Boesky Affiliated Entities." According to the allegations, Boesky made his purchases and sales of FMC stock through one or more of these Affiliated Entities. Defendant Goldman, Sachs & Co. ("Goldman") acted as FMC's financial advisor on the recapitalization. Defendants David S. Brown, Ira B. Sokolow, and Dennis B. Levine allegedly passed to Boesky confidential information about the recapitalization. Shearson Lehman Brothers, Inc. ("Lehman") and Drexel Burnham Lambert, Inc. ("Drexel") are named as defendants because Lehman employed Sokolow, and Drexel employed Levine.
The well-pleaded facts of the complaint, taken as true as they must be for purposes of this motion to dismiss, tell the following story. In early 1985, FMC's management embarked on a plan to "restructure" the corporation. To this end, it hired Goldman as financial advisor. At first management considered a leveraged buy-out, but later rejected that course in favor of a plan of recapitalization. By this plan, FMC sought to decrease the proportionate equity interest of public shareholders and increase the equity held by management.1 Between December 1985 and May 1986 FMC and Goldman worked out the terms of the deal. In doing so, Goldman analyzed FMC's corporate structure, its long-term prospects in light of anticipated general economic and business conditions, and the growth nature of FMC's principal businesses. Goldman also had to evaluate the recapitalization plan and offer an opinion about its fairness to public shareholders.
On February 21, 1986, in a letter to FMC's board, Goldman outlined the terms of the proposed recapitalization. The proposal called for an exchange of old FMC shares for newly issued stock ("New FMC stock"). The public shareholders would receive one share of New FMC stock plus $70 in cash in exchange for each share of old FMC stock. Management would receive 5.667 shares of New FMC stock in exchange for each share of old FMC stock.2 At the time Goldman announced the plan, it also issued its fairness opinion, stating that the terms were fair to public shareholders.
In reaching its fairness opinion, Goldman estimated that each share of old FMC stock held by the public shareholders and management had a value of $85. This estimate was consistent with the price at which the stock was trading; on February 21, 1986, the day Goldman issued its fairness opinion, FMC stock closed at $85 per share on the New York Stock Exchange ("NYSE"). Goldman also expected that each share of New FMC stock would have a market value of $15 after the recapitalization.
In the meantime, unknown to FMC (or its board), confidential information relating to FMC's potential recapitalization was leaked to outsiders. Brown, a Goldman vice-president, disclosed the information to defendant Ira Sokolow, a Lehman vice-president. Sokolow then passed the information on to defendant Dennis Levine. Levine in turn disclosed the information to defendant Ivan Boesky. Armed with the inside tips about the recapitalization, Boesky purchased approximately 95,300 shares of FMC common stock. On the day Boesky began his trading, February 18, 1986, FMC stock opened on the NYSE at $71.25 per share. On February 20, 1986, the day before Boesky's purchases ceased, the stock closed at $80.25 per share. During these three days approximately 707,000 shares of FMC stock traded on the NYSE. Boesky's purchases accounted for about 13% of the total volume traded.
On the morning of February 21, 1986, the price of FMC's stock continued to rise. By mid-morning the stock climbed to $83.00 per share. At this point, FMC requested that trading in its stock be temporarily suspended; it then made public the possibility that the corporation would be recapitalized. After this announcement, trading in the stock resumed. At the close of trading that day, the price of the stock stood at $85.625. The next day FMC's board approved the recapitalization plan and announced its terms to the public. By that time, Boesky had begun to sell the 95,300 shares he had purchased between February 18 and February 21.
After the February 22nd approval and announcement of the recapitalization, the price of FMC stock continued to rise. Therefore, Goldman urged FMC to review the cash portion of the deal. Because of the price rise, Goldman believed that a cash payment of $70 would no longer be fair to the public shareholders. Goldman therefore began to urge FMC's board to review the cash portion. Unbeknownst to FMC, Brown told Sokolow and Levine that the cash portion was under review. Levine then told Boesky. With this leaked information, Boesky and his Affiliated Entities bought about 1,922,000 shares of FMC stock between March 12, 1986 and April 4, 1986. These purchases accounted for more than 50% of the total volume of trading in FMC stock during this period. The complaint alleges that, because of Boesky's purchases, the price of FMC stock rose sharply to an artificial and distorted price level.
On April 7, 1986, Goldman informed FMC's board that because of the high market price of FMC stock, Goldman might withdraw its February 21, 1986 fairness opinion.3 Subsequently the trading price of FMC stock continued to rise, reaching $97 per share on April 25. As a result, Goldman told FMC that it would withdraw the fairness opinion unless FMC either increased from $70 to $80 the cash payment to be made to public shareholders, or decreased the number of shares of New FMC stock to be given to management shareholders. FMC's board opted for the $10 cash increase to public shareholders.4 Goldman also revised its estimate of the post-recapitalization market value of New FMC stock. The new estimate was $17.14 per share.
While the FMC board considered this new plan, the trading price of its stock continued to rise. Thus, on April 26, 1986, FMC's board agreed with Goldman and publicly announced that it would increase from $70 to $80 the cash portion to be paid to public shareholders. As a result of this cash increase, the revised recapitalization plan called for an additional $220 million to go to the public shareholders. Goldman also issued on April 26th, a fairness...
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FMC Corp. v. Boesky
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