The Iran-Contra scandal revealed - 21 November 1986

I see where an eminent British judge has made a distinction between the people who report the news, and the people who read or hear it – a distinction which is all too familiar to reporters, but may never even have occurred to the reader or the listener.

It is that whereas the reporter has to grab the news on the wing, the reader can check it with another messenger and conclude that the reporter was misled by the mocking bird of rumour. The judge didn’t, of course, put it quite that way, but he did point out that a reporter works against a deadline and can’t enjoy the advantages of checking his stuff line by line, and correcting with the help of hindsight.

The cautionary words could not have struck a more telling note with me. Last week, I decided to talk about a topic that, I said, had seized the country. It was, of course, the uproar that developed out of that article in a Beirut magazine which accused the Reagan administration of shipping arms to Iran and holding secret negotiations with unidentified moderates – if any – in Iran, while the president and his loyal secretary or state Mr Shultz had been busy in publicly imploring America’s allies to follow America’s staunch example by banning all arms to nations that sponsor terrorism, and never, ever try to deal with them.

Once American and other reporters got on to the story very much more came out and, Mr Shultz more than anybody looked pretty foolish. Foolish and betrayed, since he had been dead against negotiating from the start, and in the past six months or so was left out of the negotiations and not briefed about what was going on.

Well, all this and more was on my mind when I sat down last week at this microphone and taped my talk for its usual transatlantic delivery by carrier pigeon to London. Right afterwards, I learned that President Reagan was going on the air that evening so – my talk would not be heard until the next night – it was necessary to scrap the talk and start all over again next day, in the light of what the president would say and how he would defend and justify his policy.

I noted then, as I still would now, the avalanche of criticism that had descended on him all the way from the liberal wing of the Democratic party to the right wing of his own party, mentioning in particular the surprising denunciation of Senator Barry Goldwater, who has been the president's most loyal supporter at all times.

Well, not quite all times – he once wrote and published a blistering letter to Mr William Casey, the head of the Central Intelligence Agency, when it came out that he had sanctioned the secret mining of those Nicaraguan harbours. "Hell, Bill," wrote Goldwater in his no-nonsense way, "what is going on here?"

Before I sat down again to broadcast the Iranian story, and after the president had made his artful, sincere plea to us to trust him and his worthy motives, I waited to hear the result of the first poll and how the people – the people who had heard or read his television talk – had taken it. It was a shock, but one essential to report, which I did, that 72% of the people were on his side.

What I didn’t think of then, was that any nationwide poll of the people based on a true statistical example of the whole population must include the 63% of the qualified voters who didn’t bother to go to the polls in the congressional elections two weeks ago. It’s a shocking fact of what Americans like to call participatory democracy that almost 30% of the voters chose to participate; the other 63% very likely don’t care much about the way they're governed, provided Mr Reagan keeps minding the store and gets the remaining hostages out by any means he cares to use.

Well, a day or so later it became clear that the poll was taken pretty soon after the president had finished his television appeal and it was an immediate reaction to his performance. This week the Los Angeles Times sponsored another nationwide poll, equally reputable, with a startlingly different result. Only 12% of the people approved of his secret negotiations, about 20% were in doubt, 58% against the whole business and did not accept the president's assurance that the release of hostages following on three arms shipments, two by trans-shipment via Israel, was simply, as Mr Reagan called it, a bonus, and not the chief aim of the negotiations.

Well, now the whole thing is being investigated by both the Senate and the house committee and we’d better not jump the gun but wait and see what other secretes they unearth and whether they will propose new and more stringent laws, in this case, to govern the limits of the president's initiative in foreign policy. That – better laws – is what congressional investigations are about.

If a country can be seized by two scandals at once, this was the week it happened. A name that nobody had ever heard of came leaping into the headlines and on to the screens, not only in America but in Europe. It is the name of Boesky, Ivan Boesky the 49-year-old son of a Russian immigrant who came to make a respectable pile in a small restaurant chain in Detroit.

The son never finished college being, I should guess, too smart to wait to have his talents authenticated with a degree, though he did get one from a small so-called college of law. He married a very rich girl and, to his credit, felt uncomfortable living in a plush New York apartment which was a present from his father-in-law. About ten years ago he discovered arbitrage, which sounds like something in arbitrage, which sounds like something in admiralty law, but is in fact a speculative game played in the very real world of financial mergers and takeovers.

It’s a special profession and there is nothing illegal about it. An arbitrage firm is one that commits capital in the stocks of companies that have publicly announced – note that, that have publicly announced – they are available for mergers or already about to arrange one, and also for firms that have filed for bankruptcy and are about to be reorganised. The legitimate arbitrage firm does not arrange mergers or buy up stocks on rumours of a merger.

Mr Boesky borrowing about half a million pounds from his mother-in-law, set up his own arbitrage company, and developed a wide and deep knowledge of the market value of securities in both American and European corporations. He gave a new and daring dimension to the practice of arbitrage, by going out on a wrangler's limb and risking huge amounts of money on the financial future of current mergers and takeovers. He never flaunted the enormous wealth he acquired as Wall Street’s most brilliant and, you might say, most envied risk arbitrator, able to buy up millions of shares to trade in and out, as they say, of a promising situation.

In the past year or two even ordinary newspaper readers, let alone small investors, have become fascinated or frightened by the running epidemic throughout Europe and America of mammoth takeovers and giant mergers. These, often totally unexpected, mergers in which fortunes could be made from swift purchase of stocks that might become more precious overnight from the alliance with a prosperous giant, tempted some arbitrageurs to take bets on which merger might be next.

We are now moving from the heady daylight of legal speculation into the twilight zone of illegality. Mr Boesky, it seems, glided into the shadows and appears to have gone beyond, not merely guessing who’d be next, but discovering from confidential sources about possible or likely unannounced mergers and takeovers. Pick the next possible target, buy up thousands, perhaps millions, of shares. So as not to draw attention to the game, do it through various American or European partners or fronts.

The merger's then announced and you reap the enormous profit from stocks whose value you yourself have helped to inflate. Acting in this way, before a merger is announced or perhaps even much thought about, is called inside trading and is a criminal act.

Nobody knows for sure how much Mr Boesky is worth but he was caught, confessed and fined $100million. Which leaves him, it's calculated, only about $200million to get along on. To avoid the likelihood of a jail sentence he – as Americans say – copped a plea.

A famous criminal lawyer once said, "Show me a conspiracy case without an informer, and I’ll show a leaky prosecution case". So, Mr Boesky agreed to pay his whopping fine to the federal agency, the securities and exchange commission, which polices the stock market. And, as I say, in the hope of not going to jail and agree to inform on some of those well-disguised partners or fronts.

To do this, he taped telephone calls and wore a hidden microphone to record conversations. I think he’s been doing this for three months or so. You can imagine the wave of shudders that must have passed over some of those rather grand companies in America and in Europe that had shared or shielded his shenanigans. Worse still, it now appears that Mr Boesky, having decided to come clean in the SEC, sold off last week nearly half a billion dollars' worth of securities. So now many legitimate corporations and stock traders are feeling waves not of guilt, but of righteous fury.

The SEC’s plea-bargaining deal with Mr Boesky prompted a wry memorable comment this week. You must have read that very different sort of commission, a sort of Cabinet of the Mafia was convicted last week and some of the biggest shots of the families of organised crime were sentenced to long prison terms for conspiracy fraud, and arranged murders.

One of the victims being lead off to jail said, "There is no justice in this country. If you are handling millions of dollars you get off with a fine but it’s not the same if you are handling human beings."

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