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Raymond L. Dirks, a maverick Wall Street analyst who was accused of insider trading by securities regulators but then acquitted by the U.S. Supreme Court as a whistle-blower in a major fraud, died in Manhattan on December 9. happened. He was 89 years old.
His death was confirmed by his brother Lee. He died at a nursing home, where he had been living since he was diagnosed with dementia in 2018.
Mr. Dirks, whom Bloomberg News once called “arguably Wall Street’s most famous securities analyst,” was involved in uncovering one of the largest corporate frauds in American history.
He was a 39-year-old senior vice president of Delafield Childs, a research-oriented New York brokerage firm, when, in 1973, he received a tip from a former executive at Equity Funding Corporation of America that the firm had sold fraudulent policies. For reinsurance companies, transactions that increased its assets and earnings.
After doing his research into the Los Angeles-based company’s equities, Mr. Dirks told a Wall Street Journal reporter about the fraud and advised his clients, who were institutional investors in equities, to sell their stakes.
Equity Funding collapsed and many of its executives were prosecuted and jailed.
While Mr. Dirks was hailed as a folk hero in some circles—the New York Times called him “flamboyant, volatile and persistent”—the SEC ultimately charged him with insider trading and violating anti-fraud provisions of the law. Condemned to do. Insider information and sharing it with investors. Investors sold their equity shares before the information became public.
The Commission threatened suspension and other possible penalties, as well as the $1.5 million (in today’s dollars) that Mr. Dirks said he had spent on legal fees from 1973 to 1983 as he challenged the SEC in the federal court system. Due to which his life was badly affected. Earning, his brother said.
That 10-year struggle ended in 1983, when the Supreme Court overturned the SEC’s condemnation, rejecting the agency’s interpretation of insider trading. (The interpretation was also challenged in strong terms by the Justice Department.)
Writing for the 6–3 majority, Associate Justice Lewis F. Powell Jr. said the Commission’s broad definition of what constitutes insider trading “threatens to impair private initiative in exposing violations of the law.”
The court ruled that liability depends on whether the original source of the tip, or “tipper”, breached his or her legal duty to the corporation’s shareholders in providing the information. In this case, Justice Powell concluded, Tipper was motivated by a desire to expose the fraud, and “no derivative violation was committed” by Mr. Dirks, who did not personally profit from selling the company’s stock.
Although the court sided with Mr. Dirks, its decision invited criticism from securities industry regulators and some investors, who warned that it would undermine public confidence in stock trading and make insider training cases more difficult to prosecute. Will make.
“Although the SEC will still be able to bring ‘hard-core’ cases,” Stanley Sporkin, the commission’s former enforcement director, wrote in 1983, “its efforts to reduce tipping and enhance market integrity have been significantly weakened. “
Raymond Louis Dirks Jr. was born on March 1, 1934 in Fort Wayne, Indiana. His father was an Army artillery officer who moved his family frequently as he was assigned from one base to another and later a salesman for an industrial manufacturer. Chains of power. Raymond’s mother, Virginia Belle (Wagner) Dirks, was a homemaker.
After graduating from Needham High School in Needham, Mass., Mr. Dirks earned a bachelor’s degree in history from DePauw University in Indiana in 1955. In 1956, he was called up for military duty by the draft board in Wellesley, Mass., but he successfully resisted, despite the pleadings of his Army veteran father and his brother, who was then in the Air Force. But he was a pacifist.
In 1955, Mr. Dirks joined the estate and trust division of Bankers Trust in New York, then moved to other firms as an insurance stock analyst. He and Lee Dirks (who specialized in newspaper stocks) founded Dirks Brothers Analysts in 1969 to serve institutional clients. It later merged with Delafield Childs.
Mr. Dirks left Delafield after the equity fraud episode and eventually joined John Muir & Co., where he became general partner.
But in 1981, regulators ordered Muir liquidated because he lacked sufficient capital after underwriting stock offerings in highly speculative companies and hosting extravagant parties for clients. One of the underwriting ventures involved the Cayman Islands Reinsurance Corporation.
Six months later, the SEC charged that Mr. Dirks failed to disclose in that venture’s prospectus that one-third of the proceeds from the sale of a new stock issue by the Cayman Islands company would be invested in other stocks backed by Muir. ,
A federal judge ruled that Mr. Dirks had violated federal securities laws and had to forfeit his earnings from the venture. But the judge refused to ban him from the securities business.
Mr. Dirks’s first marriage, in 1959, ended in divorce after two years. In 1979, he married Jessie Wolfe, who died in 2015. In addition to his brother, he is survived by a daughter, Suzanne Dirks.
Mr. Dirks didn’t necessarily come to Wall Street, but he was a numbers whiz from childhood.
When he was 12, he devised a complex formula to predict the outcome of football games, and, his brother recalled, “he outperformed football forecasters who were syndicated columnists.”
While working at a car rental agency during summer breaks from college, Ray analyzed stock tables, using his statistical skills to predict the trajectories of individual companies.
At age 19, he began investing the $800 he had saved as a career boy for The Indianapolis News. His father was frightened. As a recent graduate of Purdue University, Raymond Sr. had purchased some AT&T stock in 1928, lost his investment in the stock market crash of 1929, and never played the market again.
His son bought 10 shares of Indiana Standard for $780; An hour later, the stock had split two for one and was up several points.
“I thought I was a genius,” Mr. Dirks told The Times in 1983.
He invested his profits in the Gulf, Mobile and Ohio Railroad, and within a few weeks after the stock recorded another solid profit, he sold it.
“By this time,” he said, “I was convinced that I was a genius.”
By 1973, after nearly two decades of investing, Mr. Dirks had amassed more capital than he had wasted. However, all he would say was: “I am doing much better than average. “I’m not losing as much as everyone else.”
Ten years later, he predicted that the Supreme Court’s decision would improve the status and remuneration of stock analysts like him.
“As a result of the Dirks case, perhaps analysts will no longer be seen as dwarfs with graphs and charts full of stale numbers and wavy curves,” Mr. Dirks wrote in The Times’s business section. “Perhaps now the analyst will be seen for what he really is – an investigative reporter of the markets, an essential vehicle of information for the investment community.”
