Full opinion text
OPINION AND FINDINGS (IN PART) MILTON POLLACK, Senior District Judge. This suit involves a subsidiary chapter to be completed in relation to well documented legal history of the scandalous conduct of Drexel Burnham and Michael Milken in the 1980’s. This chapter is part of the larger story and deals with the oft-enjoined predatory conduct of Victor Posner, his son Steven Posner and their controlled corporation Pennsylvania Engineering Corp. (“PEC”), until the latter’s bankruptcy in 1992. This suit was commenced in 1988 following the revelations of Ivan Boesky in 1986 and 1987, which landed him in jail in 1987. The claims against the defendants Posner and PEC marked time while the SEC was busy clearing up the claims against the other defendants named herein. Those others included Drexel, Michael Milken, Lowell Milken, Carey Maultasch and Pamela Monzert, all of whom ultimately were cast in judgment and permanently enjoined from violating the United States Securities and Exchange Act and the Securities Act. Additionally, Drexel was required to disgorge the sum of $350 million and Michael Milken disgorged the sum of $400 million. This left only the Posners and PEC to be dealt with in this litigation. During attention to those defendants, the SEC had vainly in a five-year period sought depositions and production of records from the Posners and PEC, only to be rebuffed with refusals based upon the Fifth Amendment privilege against giving testimonial data. Just before trial, the Posners in a grandiose gesture, announced that they would be prepared to testify at trial. Their refusal to participate in discovery proceedings before trial entitled and obtained for the SEC an order of preclusion against the Posners from testifying at trial; having denied an opportunity to SEC to depose and obtain discovery before trial, the SEC was entitled to an order depriving the Posners of a trial opportunity belatedly to come in with a version of their concealed story that had not been pre-tested. Nonetheless, efforts to wind up the complicity of those defendants by consent procedures were extended before trial, but did not bear fruit. The trial commenced and was completed in June, 1993. The trial was highlighted with the testimony of the witness, Ivan Boesky, called by the SEC and with the witness, Michael Milken (hereafter “Milken”), called by the Posners to the stand. The case charged the Posners and PEC with a host of violations of reporting, record keeping and the anti-fraud provisions of the U.S. Securities Laws and the Rules promulgated thereunder. The violations which are dealt with initially herein, occurred in the context of the Posners’ efforts to gain control by illegal means of Fischbaeh Corporation, a listed company on the New York Stock Exchange. The incumbent management opposed the efforts of the Posners and the violations involved Ivan Boesky and his Organization which engaged in buying and parking voting stock of Fischbaeh for the benefit of the Posners, with the understanding that Boesky was at no risk of loss in the transactions and would recover his outlays and costs to carry. This action represents the third time that the Posners have been sued by the SEC for engaging in violations of the Securities Laws. The first two times they consented to the issuance of injunctions prohibiting them from engaging in future violations of various anti-fraud and reporting provisions of the Federal Securities Laws akin to those violations involved in this suit. Because prior injunctions had failed to prevent them from engaging in further like violations and because the Pos-ners have used and abused public companies, of which they are (or were) officers and directors, as vehicles to engage in rapacious and violative conduct repeatedly, and to unjustly enrich themselves unconscionably at the expense of the public shareholders, the SEC therefore here seeks an injunction barring them in the future from further serving in the capacities of officers and directors of public companies registered with the SEC. This type of relief is sought pursuant to the recently enacted statutes, Sections 101 and 201 of the Remedies Act amending Section 20(b) of the Securities Act and Section 21(d) of the Exchange Act, respectively, which provide express statutory authority for a federal court to bar or suspend individuals addicted to predatory and unprincipled conduct in respect of their management and control of public enterprises, from serving again as officers and directors in public companies registered with the Commission. The SEC also seeks an order requiring that these defendants shall disgorge the estimated amounts by which they were unjustly enriched in the processes in which they engaged at the expense of the public shareholders involved. Inasmuch as the initial discussion of this case turns on the filing of a Schedule 13D with the SEC, it is well to pause to explain Schedule 13D. The Federal Securities Laws require public disclosure of the accumulation of 5% or more of a class of voting securities of a public company by any individual, entity or group acting together. The purpose of this disclosure is to protect companies and the investing public by giving them notice of such accumulations because of their potential effect on control of the company or the price of the company’s securities. Such disclosure must generally be made by filing a document known as a Schedule 13D with the SEC, no later than 10 business days following a 5% accumulation. A copy of the Schedule 13D must be mailed to the company whose securities have been accumulated. The Schedule 13D must be promptly updated when there is a 1% change in the size of the accumulation or a material change in the information contained in the filed Schedule 13D. The Fischbach Transactions: The prelude to the Fischbach transactions commenced in or about 1980, when the Pos-ners and their dominated and controlled corporation, Pennsylvania Engineering Corporation (“PEC”) started accumulating a sizable position in Fischbach. By March 20, 1980, PEC had filed a Schedule 13D -with the SEC disclosing beneficial ownership of 10.53% of Fischbach’s outstanding common voting stock. In August 1980, PEC and Fischbach entered into a so-called “Standstill Agreement” that PEC could not acquire more than 24.9% of Fischbach’s outstanding voting securities unless a party not affiliated with PEC filed a Schedule 13D with the SEC indicating ownership of more than 10% of Fischbach’s outstanding common stock, or made a filing pursuant to the Hart-Scott-Rodino Act (“H-S-R”) indicating an intention to purchase over 10% of Fischbach’s outstanding common stock. In September 1981, PEC filed an amended Schedule 13D, disclosing that it owned 24.8% of Fischbach’s outstanding common stock. In December 1982, the Posners and PEC agreed to extend the term of the Standstill Agreement for an additional 5 years. Victor Posner, shortly thereafter, made it clear to his house counsel that he intended to gain control of Fischbach and to break the Standstill Agreement and ultimately gain 100% ownership. The evidence plainly indicated existence of Posner’s intention and of a conspiracy among Drexel, Milken and the Pos-ners formed to accomplish a breach of the Standstill Agreement as a preliminary to further stock acquisitions by PEC. Familiarity with the detailed findings of fact which accompany this opinion, will be assumed for purposes of the details spelling out the background and history of the transactions now to be discussed. In or about 1980 certain shareholders of Fischbach (the “Fischbach shareholders”), entered into an agreement (the “Standstill Agreement”) with Fischbach. That agreement on one side involved the Posners and PEC, and on the other side, the Fischbach Corporation. It barred the Posners and PEC from acquiring more than a 24.9% interest in Fischbach. Under the terms of the Standstill Agreement however, the Fischbach shareholders were permitted to acquire more than a 24.9% interest in Fischbach if, among other things, a third-party (i) acquired more than 10% of the outstanding Fischbach voting securities, and (ii) reported such purchases to the SEC and Fischbach in a Schedule 13D filing. Drexel, Milken and the Posners entered into a conspiracy to accomplish Posner’s purpose of breaking the Standstill Agreement and acquiring control of Fischbach. To carry out the plan, it was necessary to enlist others in the conspiracy who would be willing to acquire more than 10% of Fischbach’s outstanding voting stock and who would file a Schedule 13D announcing such acquisition. That would bring about the demise of the Standstill Agreement. The first attempt in the plan was made through Executive Life Insurance Co., an insurance subsidiary of First Executive Corporation and its related companies who were important customers of Milken’s High Yield Bond Department. In the latter part of 1983, Executive Life converted Fischbach convertible bonds which it owned to a 13% stake in Fischbach’s common stock. It thereupon filed a Schedule 13G, which was the appropriate schedule for an insurance company to file. However, it would take a Schedule 13D to break the Standstill Agreement which barred the Posners from acquiring additional Fischbach stock. Accordingly, sixteen days later, plainly in an effort to repair the situation, First Executive filed a Schedule 13D alleging the same facts that it had asserted in its Schedule 13G. It then apparently offered its block of common stock of Fischbach for purchase but the Posners did not have the wherewithal or the credit in the market which would enable it to finance the transaction, and in short order First Executive, in December, 1983 sold its entire block of Fischbach stock, 523,467 shares, at $52 a share, the market price approximately, to Fisehbaeh. While this result seemingly was not what was contemplated by the Posners, the latter shortly took the position that the act of filing of the Schedule 13D by Executive Life was enough to break the Standstill Agreement under its terms, and that they intended to accumulate additional shares of Fisehbaeh up to 49.9% of the total number of shares outstanding. On April 24, 1984, PEC filed an action against Fisehbaeh seeking a declaration that the Standstill Agreement was no longer in effect. Fisehbaeh responded two days later with a lawsuit of its own in which it alleged that the Standstill Agreement was still in effect because Executive Life was an insurance company which had acquired Fisehbaeh stock for investment purposes, and thus, was not required to file a Schedule 13D. Unquestionably, Milken knew of First Executive’s ownership of Fisehbaeh convertible securities. In the uncertainty surrounding the affect of Executive Life’s Schedule 13D on the PEC-Fisehbach Standstill Agreement, Milken called upon arbitrageur Ivan Boesky, and employing Wall Street argot, he encouraged Boesky to step in and buy enough of the outstanding stock of Fisehbaeh, more than 10%, which would trigger the breach of the Standstill Agreement. Milken assured Boesky that he would not lose any money if he did. Boesky reasonably understood that he was being sought to do a “parking” job at Milken’s request, and that if he took a position in Fisehbaeh, he would be “stopped out”, i.e., that he would be “made whole” if the stock went down before it was delivered to the source for which the parking had occurred. Unquestionably, Boesky also reasonably understood that the Posners were part of the arrangement. Milken told Boe-sky he would arrange to have Steven Posner call him to discuss the Fisehbaeh transaction, self-evidently to vouch for the arrangement. Steven Posner promptly telephoned and discussed the matter with Boesky, reassuring Boesky that he had nothing to worry about. Boesky reasonably understood that Steven Posner was representing the Posner family interests and, on April 24, 1984, in conformity with the arrangement proceeded at a rapid pace to acquire a substantial interest in Fisehbaeh stock. During the period of Boesky’s acquisition of Fisehbaeh stock, Victor Posner was kept regularly informed by his senior in-house attorney, Edward Christenson, of the Boesky purchases of the Fisehbaeh stock. Boesky periodically reported to Milken the status of the Fisehbaeh investment that he was making, “where we stood in our accumulations”. In these conversations with Boesky, Milken told Boesky that in his opinion “the more [Fisehbaeh] stock you own, the higher price you would get.” Boesky also occasionally spoke to Steven Posner about the purchases. Boesky continued to buy Fisehbaeh stock and convertible debentures until he had purchased approximately 9.7% of Fischbach’s outstanding common stock, at which time he stopped purchasing to make the required Hart-Scott-Rodino filing, seeking permission, which was granted, to purchase up to 15% of Fischbach’s outstanding common stock. On June 29th, 1984 Boesky informed Milken of the green light obtained from HS-R. Drexel also had been accumulating Fisehbaeh stock which was added to the Boe-sky holdings, 145,000 shares, on July 9, 1984, thereby boosting his position above 10%. On July 10, 1984 Boesky filed the required amended Schedule 13D disclosing his ownership of 13.4% of the Fisehbaeh stock. Chris-tenson informed Victor Posner that a 13D had been filed by Boesky. Having bought in excess of the 10% he had been “engaged” to acquire, Boesky stopped buying Fisehbaeh. Neither the original Schedule 13D filed by Boesky nor any of the amendments to it disclosed the arrangement between him, Milken and the Posners. Fisehbaeh concluded that Boesky’s amended Schedule 13D filing relieved PEC of the restrictions under the Standstill Agreement and discontinued its declaratory relief action against PEC. In July 1984, Drexel began the process of discussing financing for the Posners including the possibility of gaming total control of Fisehbaeh. The team working on the project was led by Alan Brumberger in Drexel’s New York office. Their analysis showed that PEC’s earnings were weak relative to the amount of money that would be needed and that it would be difficult to finance the transaction. Sometime during the ensuing period it developed that Brumberger’s colleague Steven Weinroth, did not want to do business with the Posners altogether. Not only because they did not have strong credit, but because of their “controversial” reputation. In contrast Milken was in favor of proceeding. Milken prevailed. The market price of Fisehbach stock began to drop sharply in the latter half of 1984 and got as low as $32 per share and Boesky kept up a regular and repeated demand for a takeout from the parking arrangement. In response, Milken kept on assuring him that there was no need to worry and reminded him that he was guaranteed against loss. Boesky repeated his concerns to Steven Pos-ner, who also kept on reassuring him not to worry. Ultimately, after considerable time had elapsed, and the market price for the stock showed only a modest recovery, Boe-sky conveyed his desire to be taken out of the investment by March 1, 1985; he told Steven Posner that this date marked an internal problem for him. Arrangements were made by Drexel for a private placement to finance a takeover of the Boesky block without providing a clue to the parking deal and to meet a bank loan of PEC in connection with clearing up PEC’s balance sheet for issuing its securities in the financing. A price for the block had to be set which could be published. Boesky’s expenditures for the block were in the neighborhood of $52 per share but the stock was selling in the market at about $35 per share involving a loss of $6.5 million. Boesky and Milken sought to set a price which would not be too high in relation to the market price “so as to avoid making the transaction seem ridiculous”. Victor Posner personally discussed with Milken among other things, the closing of the deal and the nominal price to be paid to Boesky and while Posner wanted to fix the price only a little bit above the market he agreed to set a price of $45 per share for the takeover. That price would reduce the loss to Boesky to approximately $2 million after crediting some gains realized by him on some Fisehbach convertible debentures and would be taken care of in another way. Unquestionably it was deemed better to disassociate the takeover price from Boe-sky’s actual costs and leave it to Milken to arrange reimbursement to Boesky. for the shortfall some other way. Boesky and Milken mutually arranged a transaction to be carried out over-the-counter in London at $45 a share, which was roughly $9 per share higher than the price of the stock prevailing on the New York Stock Exchange (“NYSE”). PEC thereby picked up only about $3.6 million of the loss on Boesky’s investment. On the following day the Posners took over from Drexel, through a NYSE transaction, 85,000 additional shares which Drexel had accumulated, at the NYSE price prevailing of $39,625. The total number of shares which the Posners thus acquired at the time was 590,687; PEC’s subsidiary was the purchaser in each transaction. This maneuvering left an unreimbursed loss to Boesky of about $2 million, which Milken and Drexel took care of in other ways later on to satisfy Boesky’s reimbursement. Drexel underwrote and sold in a private offering approximately $56 million in securities issued by PEC’s subsidiary, Pennsylvania Acquisition Securities, to pay for the stock the Posners acquired from Boesky and Drexel and to pay off $18 million of PEC’s debt to banks. Drexel received $3 million from the Pos-ners in compensation. While one of Posners’ executive’s told Steven Posner that he considered the compensation to be too high, it had Victor Posner’s express approval. The Criminal Prosecutions Boesky, Milken and Drexel were each charged with felonies growing out of the Fisehbach transactions and each pleaded guilty to the charges. Boesky was charged with conspiracy to violate the Securities laws by filing false and inadequate Schedule 13D’s which failed to disclose the secret arrangements for parking the stock and to reimburse Boesky for any losses on the transactions, and for failing to disclose the connection to the Standstill Agreement. Boesky pleaded guilty as charged to the criminal conspiracy charged in April, 1987. Included in the government’s statement to the District Judge at the plea hearing, with which Boesky affirmatively agreed, was the charge that Boesky had been instructed by his co-conspirator to buy over 10% of the stock outstanding and was expected to file a 13D accordingly. The Information also asserted that arrangements were made for the Posner Group ultimately to buy Boesky’s accumulation of stock through the London Stock Exchange after hours in an over-the-counter transaction at a price more than 20% above that prevailing in the American market, in a disguised attempt to make Boesky nearly whole on his costs. Drexel was charged with felony on the Fischbach transactions in an Information referring to the Standstill Agreement and stating that Milken had caused Boesky to acquire more than 10% of the Fischbach stock for the benefit of the Posner Group, with the purpose to break the standstill arrangement, and have a 13D filed without disclosure of the guarantee against loss (the parking arrangement). Drexel pleaded guilty as charged to the six Count criminal Information. The government charged that Drexel was also accumulating Fischbach stock while working on a financing of the Posner Group and that its actions were with the purpose to aid in breaking the Standstill Agreement and enabling the Posner Group to acquire control of the company; and that Drexel through Milken had secretly reimbursed Boesky for his losses. The authorized representative appearing at the Plea proceedings for Drexel, stated to the District Judge on its behalf that “based on the information available to it, Drexel is in no position to dispute the government charges”. Michael Milken was charged in six Counts with felonies, to all of which he pleaded guilty as charged in April 1990, as a co-conspirator and as an aider and abettor in unlawful Fischbach transactions undertaken for the undisclosed economic benefit of “Milken, Drexel and its customers”. The Information charged that Milken had induced his co-conspirator Boesky to purchase and hold more than 10% of outstanding Fisch-baeh stock with the assurance that Drexel would make up any losses, if any; that on or about July 9, 1984, the Boesky Organization bought in excess of 3% of Fischbach stock from Drexel (which it had been accumulating), thereby increasing Boesky’s holding to more than 13% and on July 10, 1984, Boesky filed an amended Schedule 13D which fraudulently concealed Drexel’s interest in Boe-sky’s purchases; that the purpose was to evade regulatory requirements and to fraudulently conceal the true situation with respect to the Boesky 13D filings. Milken told the District Judge in the plea hearing in referring to the arrangement he had made with Boesky that, “I do not remember what I told him six years ago, but I indicated to him that he would not lose money” ... “I assured him that Drexel would make good on his íosses. These assurances were not recorded in the books of Drexel and I did not expect that they would be reflected in any Schedule 13Ds filed by the Boesky Organization and in fact they were not”.... Milken further stated: “The Boesky Organization began buying Fischbach securities and eventually bought over 10% of Fischbach including securities that had been owned by Drexel. Over the next months, he called me incessantly to complain that the price of the stock was dropping, that Drexel was responsible for his losses, that my comments to him were guarantees against loss, and that he expected us to make good. Thus, I assisted in the failure to file an accurate 13D. This was wrong and I accept responsibility for it. This is the basis for Count II, and is one of the overt acts in Count I”. Milken also admitted that “in order to make up these losses, I caused Drexel to execute certain bond trades which resulted in profits to the Boesky organization”. The Proof At Trial The trial before the Court fleshed out the Fishbach transactions in more detail through the testimony of Boesky and Milken, supplemented by testimony at trial and by depositions of others. It turned into a swearing contest on the Posner connection with Boe-sky credibly laying the facts bare and Milken carefully tip-toeing semantically and evasively away from revealing the Posner connection with and their responsibility for the Fischbach illegalities. Only so much of the evidence need here be reviewed separately from the accompanying Supplemental Findings of Fact. Briefly, Boesky’s testimony was that Milken telephoned to him suggesting the purchase and parking of 10% of Fischbach stock and that he would be stopped out and made whole by the Posner group if the stock were to go down. Milken also told Boesky that if he should want any direct conversation with the Posners, that he would arrange to have Steven Posner call Boesky. That same afternoon, within a matter of hours, Steven phoned and talked to Boesky and guardedly acknowledged his awareness that Boesky was to buy the stock saying basically “don’t worry about it.” Boesky testified that he believed it was very reasonable for him to assume that he was speaking for the Posner Group. He added, “Steven was a known entity among the Wall Streeters.” Steven Posner was the senior executive and vice chairman in New York in charge of the Pos-ner companies. Boesky thereafter had additional conversations with Steven Posner. They talked about when it was reasonable to assume that Boesky would be able to sell the position accumulated and the general response was “not to be concerned.” There were several conversations between the two during the course of the holding about the persistently declining market price of the stock, and in response to Boesky’s statement “Gee, it’s down quite a bit”, Steven would say “Don’t worry about it”. Ultimately, Boesky communicated to Steven that he would like it to be done by a time certain; he mentioned March, 1985. Boesky wanted to clean up the transaction by then if possible. Steven Pos-ner never denied or repudiated his connection with the transactions nor in any way suggested that it was not the Posners’ problem. Milken’s testimony on direct examination was that he did not “recall” telling Victor or Steven Posner of his assurances to Boesky. He denied any agreement, understanding or arrangement with Victor or Steven Posner about his assurances; he denied arranging the telephone call by Steven to Boesky; “not that I recall”, he also said. On cross-examination, Milken admitted that Drexel served as banker for the Posners and had ultimately financed in a private placement the purchase of the Boesky block by Penn Engineering, the Posner entity; but he denied that the Posners were co-obligors ,to Boesky with him. On the issue of Milken’s credibility, Milken also testified as follows: He did not remember “exactly” what he told Boesky but admitted “initiating” the conversations with him; he did not encourage Boesky to buy a “specific” amount of Fischbach, although the criminal Information to which he pleaded guilty said that he unlawfully induced the Boesky Organization to buy and hold more than 10%; he did admit guaranteeing Boesky for his losses; he claimed that he first assured Boesky against loss at the time when Boesky’s losses totaled $6.5 million because of the sharp drop in the market price; that Drexel would make good because of “the future relationship we hoped to have with his firm” was his alleged reason; he denied any participation as testified by Boesky, in fixing the nominal $45 price for Boesky’s sale to PEC; he denied he originated or participated in the idea of going to the over-the-counter market in London to do the trade, and claimed he does not know why it was done there; in short he contradicted most of Boesky’s testimony to the contrary. He admitted that the day after the Posners paid $45 a share, Drexel sold them 85,000 shares of Fischbach at $39+ a share through the New York Stock Exchange; and he admitted that Drexel took a $3 million fee for “investment banking” services from PEC, that was paid from the private placement to finance the purchase of Boesky’s block of stock and to pay off a bank loan to PEC. Milken’s denials, lapses of recollection and responses were unworthy of belief, contradictory and internally inconsistent. His demeanor evidence and sparring with the examiner and the Court belied their credibility. Herbert C. Griffin, a witness by deposition, had left a bank connection to join the Posner controlled companies where he served from 1979 until August 1986, laterally in the capacity of executive vice-president. He described Steven Posner’s role as in charge of the New York office and as Milken’s main contact at the Posner affiliated companies; and that Steven conducted the senior level relations responsibilities of the office. Griffin testified that during the fall of 1984 Milken was in conversation on a speakerphone with Steven while Griffin was present in the office and that Milken told Steven that Victor Posner intended to buy Fischbach stock from Boesky, to which Steven replied, “We don’t have the money to do it and we want to do it, so you guys have to raise the money for us to do that, if that’s what we’re going to do”. Steven, according to Griffin was in favor of purchasing the stock from Boesky. After the deal with Boesky was closed, Griffin told Steven that in his opinion, the price paid to Boesky for the block was too high, to which without explanation, Steven responded that “he thought it was appropriate”. Donald Glazer, a defendants’ witness at the trial and by deposition, had joined the Posner companies in 1984 to do work on the needed financing for PEC to purchase Fisch-bach stock. In December 1984, he met with Alan Brumberger of Drexel in this connection. Initially he canvassed the suggestion of a financing that would allow Posners to make a tender offer for any and all of the stock up to 100% of the amount outstanding. Early on, however Glazer was told that this was not feasible and that Drexel would not be able to do that degree of financing for the Posners at that time and suggested that the Posners do just the Boesky block for the time being. When Glazer relayed this information to Victor Posner he was told that Victor wanted a commitment by Drexel to go beyond the Boesky purchase in the financing plans. Victor wanted an assurance from Drexel that the latter would get financing to acquire up to 80% of Fischbach. A suggestion was explored that this goal could be reached in three separate financings: the first would be basically to buy the Boesky stock; the second would be to get the Posner ownership up to over 50%; and the third would be to get the remainder up to a minimum of 80%. Glazer suggested that Victor himself should speak to Milken, that this might help. The next day, in Glazer’s presence, Victor phoned Milken directly and spoke to him about this. Milken expressed a willingness to make the effort in three steps, but pressed Victor to close the pending Boesky purchase. When Victor got off the phone, he told Glazer to go ahead and buy the Boesky stock and that he would rely on Milken to do later financings up to 50% and then 80%. In Glazer’s testimony by deposition it appeared that during the week of the closing with Boesky, Posner’s lawyer, Sy Hertz, discussed with Steve Freiden, Boesky’s lawyer, the price to be paid to Boesky. Freiden took the position that they were not going to negotiate on price; the amount to be paid was what it would take to make Boesky whole, namely, cost to Boesky plus cost to carry the stock. Negotiations for a price, according to Glazer went on for a week but price was not resolved by counsel. Glazer testified that the final decision regarding the financing, the price set for the trade in London for the Boesky stock and Drexel’s $8 million fee were made by Victor Posner. Although Glazer said, “I knew all of the essential details to get to the negotiations, close the transaction”, but he professed not to have known at the time what price was agreed and paid, or to remember what the differential was between Boesky’s cost, the market at the time and the price paid, or how many shares were involved in the block purchased, or why the transaction was shifted to the London market to be closed there. He did recall with some prodding that the New York market price was $38, 39 or 40. This blurred recollection on the part of the man most intimately involved was remarkable, to say the least, is not worthy of belief and is not credited. In sum, Steven Posner was shown to have been in, from the start, on the deal arranged by Milken with Boesky. From the start, Victor kept a close watch through his house counsel on its development and surfaced to give his sanction for the closing of it in all pertinent aspects. Boesky’s testimony substantially gave the credible version of the parking job he undertook. The issues of credibility are resolved in favor of the plaintiff and against the defendants. There is enough affirmative proof from the witnesses, the documents, the corroborating circumstances and the probabilities on which to draw the reasonable inferences and conclusions in favor of the plaintiff that surmount the pallid semantic and almost ludicrous denials and contrived explanations of the defendants’ witnesses. Additional The accompanying Supplemental Findings of Fact and Conclusions of Law collate the essential matters in respect of the issues and findings of fact set forth herein and sufficiently deal with the remaining issues decided by the Court in this case without need for a further explanation by an opinion thereon. SO ORDERED. SUPPLEMENTAL FINDINGS OF FACT AND CONCLUSIONS OF LAW I.THE DEFENDANTS 1. At all times relevant, defendant Victor Posner dominated the affairs of a number of interrelated public companies including Pennsylvania Engineering Corporation (PEC), Sharon Steel Corporation, and DWG Corporation. In each of those companies, he held the titles of chairman, president, and chief executive officer, and directly or indirectly owned a controlling interest in the company’s stock. No significant acquisition or sale of assets could be effected by any of those companies without Victor Posner’s approval. From the testimony of all the witnesses who testified at trial it was clear that, as one of them put it, “all important decisions had to be cleared by Victor Posner.” The Posner companies’ executive offices have for years been located in a converted apartment building in Miami Beach called Victorian Plaza which is owned by a Posner family trust. 2. This action represents the third time Victor Posner has been sued by the SEC for engaging in violations of the federal securities laws. The first two times, he consented to the issuance of injunctions prohibiting him from engaging in future violations of various reporting and antifraud provisions of the federal securities laws, including those he is alleged to have violated in this case. As is more fully described below, those cases arose out of alleged instances of self-dealing and personal indulgence at the expense of public shareholders and foreshadowed later legal battles involving the Posners. 3. Victor Posner’s problems with the federal government have not been confined to violations of the securities laws. In 1982, he was charged in a ten-count felony tax fraud indictment with having taken inflated deductions for land he had donated to a local college. After the trial judge learned that a juror had read news stories about Posner during the trial and, on that basis, set aside the jury’s verdict finding him guilty on all ten counts, Posner entered a plea of nolo conten-dere to one count of conspiracy, four counts of tax evasion and five counts of filing false federal income tax returns. 4. Defendant Steven Posner is Victor Posner’s son. He was at all times relevant a director and vice chairman of a number of public companies including PEC, Sharon Steel, and DWG, and headed a New York office established to enable the Posners to develop and maintain relationships with commercial and investment bankers. Steven Posner has, like his father, also previously been enjoined from engaging in violations of the federal securities laws. 5. During the years preceding the events giving rise to this action, Victor and Steven Posner established a business relationship with defendant Michael Milken, the founder and head of the High Yield Bond Department of defendant Drexel Burnham Lambert Inc. Between 1982 and 1985, Drexel raised at least $400 million in capital for the Pos-ners through public offerings and private placements. 6. At all times relevant, Steven Posner had a business relationship with Ivan Boe-sky. Boesky knew Victor Posner, but it was Steven Posner who was Boesky’s primary contact at the Posner organization. Boesky visited Steven Posner at his offices on a number of occasions and, from time to time, would discuss various merger and acquisition situations with him. 7. Defendant PEC was at all times relevant a publicly held Delaware corporation with its principal place of business in Pittsburgh, Pennsylvania. Its securities were registered with the Commission pursuant to section 12 of the Securities Exchange Act of 1984, 15 U.S.C. § 781. On February 4, 1992, PEC filed for protection under the federal bankruptcy code. II. THE FISCHBACH FRAUD A. The Posners’ Foothold in Fischbach 8. In January 1980, PEC started accumulating a sizeable position in Fischbach Corporation, an electrical and mechanical contracting concern whose stock was then traded on the New York Stock Exchange. On March 20, 1980, PEC filed a Schedule 18D disclosing beneficial ownership of 10.53 percent of Fischbach’s outstanding common stock. 9. In August 1980, PEC and Fischbach entered into a standstill agreement which provided that, for a period of five years, PEC would not acquire more than 24.9 percent of Fischbach’s outstanding voting securities unless, among other things, a third party filed “a Schedule 13D under the Exchange Act relating to the acquisition of more than 10% of [those] Securities.” 10. In September 1981, PEC filed an amended Schedule 13D disclosing ownership of 24.8 percent of Fisehbach’s outstanding common stock. In December 1982, Posner agreed to extend the term of the standstill agreement for an additional five years. B. The Executive Life Schedule 1SG/1SD 11. At all times relevant, First Executive Corporation and related companies were important customers of Milken’s High Yield Bond Department. The president, chairman, and chief executive officer of the First Executive companies was Fred Carr, who directed more than $10 billion dollars of securities trading to Milken and his firm. Drexel also helped underwrite hundreds of millions of dollars of securities for First Executive and its insurance subsidiary, Executive Life Insurance Co. Milken came to know Fred Carr in the mid-1970’s and, during the time period relevant to this case, was in daily contact with him. 12. By the end of 1983, First Executive, through Executive Life, owned more than 10 percent of Fischbach. In a Schedule 13G filed on December 12, 1983, Executive Life disclosed its ownership of 14.41 percent of Fisehbach’s outstanding stock. Sixteen days after filing the Schedule 13G, Executive Life filed a Schedule 13D which recited essentially the same information as that disclosed in the Schedule 13G. 13. On-April 19, 1984, PEC and Posner filed a Schedule 13D in which they asserted that the Executive Life Schedule 13D had relieved them of the restrictions imposed by the standstill agreement with Fischbach, and that they intended to accumulate additional shares of Fischbach up to 49.9 percent of the total number of shares outstanding. On April 24, 1984, PEC filed an action against Fischbach seeking a declaration that the standstill agreement was no longer in effect. Fischbach responded two days later with a lawsuit of its own in which it alleged that the standstill agreement was still in effect because Executive Life was an insurance company which had acquired Fischbach stock for investment purposes and thus was not required to file a Schedule 13D. 14. Milken knew of First Executive’s purchases of Fischbach securities, all of which took place before, as described in the next section, Milken “encouraged” Boesky to buy Fischbach. C.Posner To Boesky: “Don’t Worry About It” 15. In April 1984, knowing of the uncertainty surrounding the effect of the Executive Life Schedule 13D on the PEC-Fisch-bach standstill agreement, Milken called arbitrageur Ivan Boesky. Employing a shorthand dubbed “Wall Street-ese” by Boesky in his trial testimony, Milken “encouraged” Boesky to buy more than 10 percent of the outstanding stock of Fischbach and assured Boesky he would not lose any money if he did. Boesky understood from what Milken told him that, if he took a position in Fisch-baeh, he would be “stopped out,” ie., that he would be “made whole” if the stock went down. Boesky also understood that the Pos-ners were part of the arrangement. Milken told Boesky he would arrange to have Steven Posner call him to discuss Fischbaeh. 16. Boesky expressed some concern to Milken about how long he would have to hold the stock. In his risk arbitrage business, he did not customarily hold stock for long periods of time and he had previously taken a “Posner related” position in the stock of another company — which he identified in his trial testimony as Burnup & Sims — that he had ended up holding for “a long, long time.” Nonetheless, at the conclusion of the conversation, it was understood that Steven Posner would call Boesky and that Boesky would “agree to basically begin the process of purchasing securities.” Although Milken apparently did not indicate during the conversation why he was interceding on the Posners’ behalf, Boesky knew of the existence and terms of the standstill and “by that time ... was quite aware of the fact that Mr. Milken represented many people in their transactions in various ways.” 17. Several hours later, Steven Posner did, in fact, call Boesky, acknowledged his awareness of the arrangement to have Boe-sky buy Fischbaeh, and told Boesky, “[D]on’t worry about it.” At the time of this conversation, Steven Posner “was a known entity among the Wall Streeters,” and Boesky understood him to be representing the Posner family interests. On April 26,1984, in accordance with the arrangement worked out with Milken and Steven Posner, Boesky started buying Fischbaeh stock. As he did so, he was aware that his acquiring in excess of 10 percent would break the standstill between the Posners and Fischbaeh and thereby enable the Posners to add to their Fischbaeh position if they so desired. 18. After Boesky started buying Fisch-baeh stock at the behest of Milken and the Posners, he would periodically advise Milken of “where we stood in our accumulation.” Boesky would also occasionally speak to Steven Posner about the purchases. 19. Edward Christensen, a senior in-house attorney in the Posner organization, periodically informed Victor Posner of Boe-sky’s reported purchases of Fischbaeh stock. Victor Posner had told Christensen that he would like to see the standstill rendered moot so that he could increase his Fischbaeh holdings. 20. Boesky’s progress in accumulating Fischbaeh stock was too slow for Milken, who expressed some urgency about Boesky’s reaching the 10 percent level. With Milken’s prodding, Boesky accelerated his purchases. As he accumulated what came to be a $21 million position, he relied on the credibility of Milken as agent and the Posners as principals that he would not lose money on the purchases. 21. On May 18, 1983, Boesky filed a Schedule 13D disclosing ownership of 8.2 percent of Fischbach’s outstanding common stock. Thereafter he embarked on the process of obtaining Justice Department clearance under the Hart-Scott-Rodino Act to increase his holdings to more than 10 percent, an unusual step for Boesky who did not customarily accumulate more than 10 percent of any company’s stock. He received the clearance on June 29, 1984, informed Milken of that fact, and on July 9, 1984, acquired a block of 145,000 shares of Fischbaeh from Drexel, thereby boosting his position above 10 percent. The following day, July 10,1984, he filed an amended Schedule 13D disclosing his ownership of 13.4 percent of the outstanding stock of Fischbaeh. Having bought in excess of the 10 percent he had been “encouraged” to acquire, Boesky stopped buying Fischbaeh. Neither the original Schedule 13D filed by Boesky on Fischbaeh nor any of the amendments to it disclosed the arrangement between him and Milken and the Pos-ners. 22. Fischbaeh concluded that Boesky’s amended 13D filing relieved PEC of the restrictions under the standstill agreement and discontinued its declaratory relief action against PEC. D. Boesky Gets “Stopped, Out” in London in part 23. Shortly after Boesky crossed the 10 percent threshold, the price of Fischbach started to decline precipitously. By the end of 1984, the price of the stock had dropped to $32.50 per share, more than $19.50 lower than the average price Boesky had paid for it. Boesky’s paper loss on his block of 408,-400 shares of Fischbach was roughly $8 million. During this period, Steven Posner and Milken continued to reassure him that he should not be concerned about suffering any losses on his Fischbach position. 24. Meanwhile, in July 1984, Drexel began the process of arranging financing for the Posners to gain control of Fischbach. The team working on the project was led by Alan Brumberger, an investment banker in Drexel’s headquarters office in New York. Their analysis showed that PEC’s earnings were weak relative to the amount of money that would be needed and that it would be difficult to finance the transaction. Brum-berger’s colleague Steven Weinroth did not want to do business with the Posners altogether, not only because they did not have strong credit but because of their “controversial” reputation. In contrast, Milken was in favor of proceeding with the transaction. Milken prevailed. 25. Boesky’s fiscal year ended on February 28,1985, and he communicated to Steven Posner a desire to “clean up” the Fischbach transaction by that date. Victor Posner knew of Boesky’s desire in this regard. On February 27, 1985, with Drexel acting as financial adviser, a subsidiary of PEC issued two classes of debt securities in a private placement, proceeds from which were used by the Posners to buy Boesky’s Fischbach block. Drexel received a fee of $3 million for its services, the payment of which was authorized by Victor Posner. 26. The scheme was consummated on February 28, 1985, in London over-the-counter. The transaction was effected at $45 per share, roughly $9 higher than that day’s close on the New York Stock Exchange. PEC consequently paid a premium of approximately $3.6 million above market on Boesky’s block of 408,400 shares. The price was negotiated by Boesky and Milken. Their goal, as Boesky described it at trial, “was to get as high as you could go without looking ridiculous.” Thereafter the Posners continued to buy Fischbach and eventually acquired control of the company. The scheme had succeeded. 27. Donald Glazer, formerly executive vice president and chief operating officer of the Posner companies and the main Posner negotiator in the Fischbach transaction, testified in response to the Court’s questions that he did not know anything about why the purchase of Boesky’s Fischbach shares took place on the London Stock Exchange or how the trade was arranged. 28. The above-market price the Posners paid for Boesky’s stock covered a substantial part of Boesky’s loss on the position. The balance was covered as part of a reconciliation of accounts between Boesky and Milken. E. The Fallr-Out from Fischbach 29. In April 1987, Boesky pled guilty to a criminal information charging him with making false and fraudulent statements in the Schedules 13D and amendments thereto he filed relating to Fischbach. Boesky was sentenced to three years in jail. 30. In September 1989, Drexel pled guilty to a six-count criminal information, including fraud in the sale of securities in connection with PEC’s takeover of Fiseh-bach, in violation of section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 31. In April 1990, Milken pled guilty to a six-count criminal information. Count two of the information alleged that Milken “unlawfully induced the Boesky Organization to buy and hold more than 10% of the outstanding Fisehbach equity securities” in violation of section 13(d) of the Exchange Act and Rule 13d thereunder. In his allocution, Milken admitted that he had “encouraged” Boesky to buy Fisehbach and that, although he could not remember “exactly” what he had told Boesky, he had “indicated to him that he would not lose money.” Milken also admitted giving Boesky assurances that Drexel would “make good on his losses.” F. Milken’s Credibility 32. In his trial testimony, Milken contradicted Boesky on a number of key points. Boesky testified in effect that there was an arrangement between them for the benefit of the Posners for Boesky to buy and park in excess of 10% of Fisehbach stock, to file 13Ds and thereby fraudulently void the Fisehbach standstill agreement; and Boesky’s purchases would be guaranteed against loss. 33. Milken claimed that it was Boesky who had first expressed an interest in purchasing Fisehbach. Milken claimed he merely told Boesky that he thought “it would be a good idea.” Milken admitted on the witness stand that he “encouraged” Boesky to buy Fishbach and told him he would not lose money on the stock because the investment “had little to no downside risk.” Milken claimed that he had nothing to do with a scheme to break the standstill agreement between the Posners and Fisehbach. Thus, according to Milken, based on nothing more than mild encouragement and persuasive reasoning, Boesky proceeded to commit more than $21 million of his firm’s capital to acquiring a position that was, in size and longevity, totally out of character with his usual arbitrage trading. 34. In response to a question from the bench, Milken testified that he gave Boesky “a number of reasons” why he thought Boe-sky would not lose money on Fisehbach, principal among them that Victor Posner had announced an interest in buying more Fisch-baeh stock. In response to the Court’s questioning, however, Milken admitted that, as long as the standstill was still in effect, Pos-ner could not buy any additional shares. 35. Consistent with his allocution, Milken admitted at trial that he had indeed assured Boesky that Drexel would make good on any losses he sustained on his Fisehbach purchases. In his trial testimony, however, Milken claimed that he did not give Boesky that assurance until late 1984 — by which time Boesky already had a loss on paper of at least $6.5 million. Milken explained that he took this unusual step for Boesky “because of the ... future relationship we hoped to have with his firm.” Milken added, “We also had the option to buy [Boesky’s] shares.” When asked whether the option was in writing, Milken admitted it was undocumented. Then, when asked whether anyone else at Drexel knew of this “option,” Milken backed away from it altogether: “I don’t think we would even use the word ‘option.’ In other words, there was no option from that standpoint. So no one knew about the option since it did not exist.” 36. Milken’s version of the guarantee against loss makes no sense. It is inconceivable that Milken would have given such a guarantee after Boesky had already sustained an enormous loss; it would be like someone volunteering to guarantee a business associate’s multi-million dollar loan after it is already in default. Moreover, Milken’s version provides no rational basis for Boe-sky’s holding Milken responsible for the loss or Milken’s accepting that responsibility. 37. Milken’s testimony failed credibly to rebut Boesky’s testimony that Milken specifically indicated to Boesky that he should acquire more than 10 percent of Fisehbach. When asked at trial whether he had done so, Milken responded, “I don’t believe so, sir, but I did not discourage him.” He acknowledged having told Boesky, “[T]he more stock you own, the higher price you would get.” He also admitted being kept apprised from time to time of Boesky’s Fisehbach activities, and acknowledged the possibility that he had been informed by one of Boesky’s employees — as memorialized in that employee’s contemporaneous memorandum — of the need for Boesky to make a Hart-Scott-Rodino filing before he could proceed to cross the 10 percent threshold. The Criminal Information to which Milken pleaded guilty charged that he told Boesky to buy more than 10 percent of Fischbach; he clearly “encouraged” it in “Wall Street-ese.” 38. As to making up Boesky’s losses on Fischbach, Milken professed at trial to have no recollection of having previously seen Boesky’s November 28, 1984, letter to him seeking a reconciliation of their mutual accommodations. The letter read, “Enclosed you will find a self-explanatory list of information through and including November 27, 1984. I think that it will be appropriate to resolve all of the enclosed.” Attached to it were schedules relating to profit and loss positions on several different securities including Fischbach and MCA, both of which were subjects of Milken’s guilty plea. What makes Milken’s claim that he had never seen the letter particularly difficult to accept is that he also claims “not to recall” whether he had any kind of profit-sharing arrangement with Boesky regarding these securities. 39. As a witness, Boesky presented a striking contrast to Milken. While Milken was evasive, Boesky was direct. While Milken was hesitant about committing himself about his admitted misdeeds, Boesky was frank about his. Milken sought to exploit every ambiguity and hole in his prior statements to cast his conduct in an innocent light; Boesky simply told his story. Milken gave the appearance of someone who cannot, and therefore will not, accept the fact that he has done wrong; Boesky gave the appearance of someone who has owned up to his transgressions. Perhaps most importantly of all, Boesky’s story made sense and had the ring of truth to it; Milken’s did not. For all those reasons, among others, the Court judges Boesky to be the far more credible witness and accepts his version of the transactions. III. BURNUP & SIMS 40. Burnup & Sims was at all times relevant a Delaware corporation headquartered in Fort Lauderdale, Florida and engaged in the telephone and cable television businesses. Its stock was registered with the Commission and traded over-the-counter. In January 1976, Sharon Steel filed a Schedule 13D disclosing ownership of 5.6 percent of Burn-up & Sims’s outstanding common stock. By October 1979, Sharon Steel and several other companies controlled by Victor Posner had accumulated 28.78 percent of the stock. In September 1982, they raised their stake in Burnup & Sims to approximately 32.3 percent. 41. On September 30, 1982, Burnup & Sims brought an action against the Posner group seeking injunctive relief against the group’s acquiring additional Burnup & Sims stock or seeking to gain representation on or control of the Burnup & Sims board. On December 16, 1982, the court temporarily enjoined the group from seeking to displace or modify the composition of the board. On December 29,1982, the Posner group filed an amended Schedule 13D in which it stated that it intended to seek control of Bumup’s board of directors and management and was “considering possible ways of accomplishing that objective.” 42. On May 18,1983, Boesky bought 150,-000 shares of Burnup & Sims stock. No one in the Boesky Organization had done any research on the stock as of the time Boesky bought it and, at trial, Boesky could not even recall what business the company was in. 43. Boesky bought Burnup & Sims after Steven Posner called and “encouraged” him to do so, expressing the view that Boesky would make a 20 percent profit on the investment. However, the plaintiff failed to sustain its burden of proof that this was the equivalent of a commitment by Posner to guarantee Boesky’s investment profit. 44. Boesky held the Burnup & Sims stock for twenty-one months and made no attempt to sell it. Periodically Boesky asked Steven Posner when would be a good time to sell. In response, Steven Posner told him, “[Djon’t worry .about it, just ... be patient, relax.” 45. Milken had not induced Boesky to purchase Burnup & Sims stock, nor did he guarantee Boesky against loss. Boesky appears to have at one time taken the position that Burnup was a reconciling item with Milken, but after discussion between Boesky and Milken, the two agreed that it was not. Burnup was not a “Milken responsibility”. The “Tag-Along” Shares 46. While Boesky held the Burnup & Sims stock, the Posners were engaged in negotiations with Nick Caporella, president and CEO of Burnup & Sims, regarding a proposed buy-back by Burnup & Sims of the Posners’ stock in the company. Alan Brum-berger of Drexel participated in the negotiations in an effort to make peace between the two sides, both of whom were Drexel clients. During the course of these negotiations, Ca-porella indicated to Brumberger that he had been given to understand that any buy-back of the Posners’ stock would also have to include a buy-back of Burnup & Sims stock held by others, which Caporella did not want to buy. 47. Dan Stoller, a lawyer at Skadden Arps who represented Burnup & Sims was involved in Burnup’s attempts to buy back its stock from the Posners. During these negotiations with the Posners, Stoller came to learn that, not only did the Posners want Burnup to purchase their shares, but they also wanted Burnup to buy shares owned by others “described to us as being friendly to the Posner interests.” Stoller testified these “friendly shares” included the Burnup & Sims stock owned by Boesky. 48. Stoller referred to the Burnup & Sims stock held in hands friendly to the Posners as the “tag-along shares.” Stoller, who dealt with Donald Glazer and other Pos-ner representatives in connection with Burn-up & Sims, understood that a buy-back of the Posners’ shares would also have to include tag-along shares owned by Boesky, and “that these were friendly shares and they should be treated the same as the Posner shares.” Stoller testified that the tag-along shares remained an issue on the table for the duration of the negotiations in which he was involved. 49. According to Posner representatives and negotiators, Stoller understood that Victor Posner was the final decision maker in connection with any transaction between the Posner companies and Burnup & Sims. In addition, Stoller understood that prior to presenting the terms of a proposed buy-back to Victor Posner, such terms had to be first approved by Steven Posner. Boesky Eventually Sells His Shares At A Profit 50. Boesky eventually sold his Burnup & Sims stock in February 1985, realizing a gross profit of approximately 18 percent, or $232,312.50 on the sale. IV. FINDINGS PERTAINING TO IN-JUNCTIVE AND ANCILLARY RELIEF AND TO VICTOR POSNER’S AND STEVEN POSNER’S FITNESS TO SERVE AS OFFICERS AND DIRECTORS OF PUBLIC COMPANIES Prior SEC and Criminal Actions 51. Both Victor Posner and Steven Pos-ner are recidivist violators of the federal securities laws. In 1972, the SEC filed an action in the United States District Court for the Southern District of New York against Victor Posner and a number of companies under his control. In its complaint, the SEC alleged that Victor Posner illegally used the assets of Sharon Steel pension funds to invest in securities issued by corporations in which he had a substantial beneficial interest; that he illegally used the pension funds’ assets to meet corporate obligations of Posner-affiliated companies; and that he and DWG faded to file required reports with the Commission. The SEC alleged that that conduct violated sections 10(b) and 13(d) of the Exchange Act and Rules 10b-5 and 13d-l thereunder and sought injunctive relief. Without admitting or denying the allegations of the complaint, Victor Posner and the other defendants consented to the entry of a permanent injunction prohibiting them from engaging in future violations of those provisions of the federal securities laws. 52. In 1977, the SEC filed an action in the United States District Court for the District of Columbia against Victor and Steven Posner, Sharon Steel, DWG, and other individual and corporate defendants. In its complaint, the SEC alleged that the Posners caused Sharon Steel and other companies under their control to pay for a wide variety of personal expenses and things of value for the Posners, at a total cost to the companies of over $1.7 million; that Sharon Steel and its parent, NVF, filed false financial statements; and that the Posners made false entries on the books of public companies under their control. The SEC alleged that that conduct violated section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as well as other provisions of the federal securities laws and sought injunctive relief against the defendants. Without admitting or denying the allegations of the complaint, Victor Posner, Steven Posner, and the other defendants consented to the entry of a permanent injunction prohibiting them from engaging in future violations of those provisions of