U.S. Govt aims to confiscate ‘junk bond king’s’ millions

Press, 13 April 1989, Page 23

U.S. Govt aims to confiscate ‘junk bond king’s’ millions

By

TOM BRIDGMAN

of NZPA in Washington If Michael Milken had been a corporation his earnings of SUSSSO million (SNZB96M) in 1987 would have ranked him sixty-fifth, just ahead of McDonald’s, on the profits list of the United States’ 500 largest public companies. ■ Every minute of every day and night that year Mr Milken earned about SUSIO46. As he headed home from a workday starting about 4.30 a.m„ he would be close to notching up another $1 million. But now the United States Government wants it all back — a staggering SUSI.BSB the so-called “junk-bond king,” his brother and one other defendant earned in the four years ending in 1987. In a 98-count felony indictment just filed federal prosecutors charged the kingpin of Drexel Burnham Lambert, along with his brother, Lowell, and a former Drexel bond trader, with manipulating stock prices and cheating clients and shareholders in more than a dozen stock transactions. The Government has laid charges under RICO, a federal law originally targeted to break up

organised crime, which allows it to go after every dollar involved in alleged crooked deals. “What the prosecution has done is put Milken’s wallet on the table,” says one lawyer close to the case. “It’s not going to make him very sympathic to members of the jury, who would be ecstatic if they earned SUSSOO,OOO, or one-tenth of 1 per cent of that amount.” The charges follow years of investigations into insider trading and securities fraud during the free-wheeling greed of the 1980 s on Wall Street, a culture exposed in the movie of the same name and based in part on the speculator, Ivan Boesky, who himself has had to pay out SUSIOOM to settle insider trading charges and is now doing time for lying to the Government. Rising above the tide of bright, newly-wealthy professionals was Michael Milken, aged 42, who from his empire based in Beverly Hills,. California, became the king of the realm and built Drexel Burnham Lambert into a Wall Street powerhouse.

The company has now been shaken from that position, agreeing to plead guilty to six felony charges and pay SUS6SOM in fines as part of the ongoing insider trading investigations. 1 Mr Milken, who has pleaded innocent to the charges, made the wealth for himself and Drexel through the creation of junk-bonds, the high-yield, high-risk bonds which gave small and mediumsized companies access to enormous amounts of capital and were used to finance often hostile takeovers that have altered the face of corporate America. Take-over specialists and corporate raiders like T. Boone Pickens and Carl Icahn used them to advantage, while recently Drexel was involved in SUSS billion of the financing for the record $U524.888 take-over by Kohlberg, Kravis, Roberts and Company of food and tobacco conglomerate RJR Nabisco Inc. The charges against Mr Milken and his confederates are complex and analysts predict they may not come to trial as

there will be tremendous pressure for an out-of-court settlement. But if it does take place in about a year, the legal fight will put the spotlight on Wall Street and its activities in a way not seen for the last 50 years when Congressional hearings exposed the corruption in financial markets before the 1929 stock market crash. Some of America’s top legal talent will be involved, including Arthur Liman, the Senate counsel during the Iran-contra hearings who will represent Mr Milken, and who is expected to grill leading Wall Street figures about the cut and thrust of the take-over world. More than anything the trial would focus public attention on the enormous wealth earned by those involved in stock-trading and corporate take-overs. Mr Milken’s income as revealed by the investigators has brought gasps of amazement even from those used to huge amounts. “Such an extraordinary income inevitably raises questions as to whether there isn’t something un-

balanced in the way our financial system is working,” said David Rockefeller, the retired chairman of Chase Manhattan Bank and whose investments and shares in family trusts are estimated to be worth SUSI.IB, told the “New York Times.” According to the charges, Mr Milken received SUS4SM as compensation from Drexel in 1983, SUSI23M in 1984, SUSI3SM, in 1985, SUS294M in 1986 and SUSSSOM in 1987 — an annual income higher than the company itself had in its best year. During the same years his brother, Lowell, made more than SUSIOOM. For all that, Mr Milken, his wife and children do not live an obviously extravagant lifestyle, owning a house he bought for about SUS7OO,OOO more than 10 years ago, two cars, and donating many millions of dollars to charity.