Deposition Gives Rare Insight Into Milken
These days, Michael Robert Milken is at center stage.
He is the purported genius who has built the $100-billion market for so-called junk bonds, many of which have been used to finance hostile takeovers. And he has drawn attention amid a wide-ranging investigation of insider trading on Wall Street that has stirred new controversy about his methods and those of his firm, Drexel Burnham Lambert, the New York investment banking house.
Both Milken and Drexel have been subpoenaed, although neither has been accused of any wrongdoing.
Milken isn’t saying anything in public about himself, his firm, junk bonds or the investigation. He shuns the press and almost never speaks in public.
But a deposition taken in September, before insider trading charges were brought against speculator Ivan F. Boesky, provides some rare insight into how Milken thinks and how he spends his day.
The deposition, obtained by The Times, portrays Milken as alternately colorful, impatient, uncommunicative, sarcastic and direct.
The Milken that comes through in the deposition is one of an executive so busy that the deposition had to be set up three months in advance and taken on a Saturday.
Milken, who says he’s involved with “potentially 1,000 transactions every day,” professed to remember little and to care less about the mundane details of his high-powered sales organization in Beverly Hills, where operations were portrayed as loosely organized and egalitarian in style.
Generally conceded to possess one of Wall Street’s sharpest minds, Milken pleaded forgetfulness on many questions. “Don’t recall,” was one of his frequent replies.
His temper clearly surfaced when he was peppered with what he considered inane inquiries. “The question is asinine,” he said in sharp response to one inquiry.
Yet the deposition also provides a rare view at how the reclusive financier thinks. He doesn’t trust internal corporate earnings projections and gives enormous weight to the quality of management when evaluating a company’s potential.
There is the Milken who is fiercely independent and appears to care little what the outside world, the press in particular, thinks of him. He claims to be little concerned about Drexel’s profits. His job, he said, is to sell and trade bonds.
His associates include some of America’s best-known financiers and corporate raiders.
With apparent reluctance, he spoke of his association with such figures as financier Saul Steinberg and his Reliance companies; Thomas Spiegel, chief executive of Columbia Savings & Loan in Beverly Hills; and Fred Carr, chief executive of Executive Life in Los Angeles. All three are major players in the market for junk bonds--the high-interest, high-risk securities used to finance takeovers and non-blue-chip companies--that Milken has helped establish in the past decade.
There is also the secretive Milken who is reluctant to discuss how much he makes or what stock he owns. Milken has become one of Wall Street’s richest men at age 40, reportedly earning $40 million in 1985 alone.
But Milken confirmed he is in partnership with Steinberg in a company called Reliance Capital and that the partnership includes the Belzbergs, a wealthy Canadian family. He also confirmed that he owned stock in First Executive, parent of Executive Life, and Columbia Savings--firms that are major purchasers of junk bonds underwritten by Drexel.
The 235-page sworn deposition, taken in a Century City law office, is part of a lawsuit filed last January against Drexel by Green Tree Acceptance, a St. Paul, Minn., consumer finance company. Drexel declined comment on the suit.
The Green Tree case, still in its early stages, centers on charges by Green Tree that Drexel improperly handled a securities offering last year by allowing Steinberg, a longtime Drexel client, to buy a large block of the company’s common stock. Drexel has denied the charges.
Central to Green Tree’s lawsuit is the allegation that Drexel, through Milken’s contacts, sold a majority of the Green Tree securities to companies controlled by Steinberg, Spiegel and the Belzberg family.
All of these entities acquired major blocks of securites in the Green Tree offering, ranging from 5.22% for Far West Savings to nearly 40% for Executive Life, according to the Green Tree lawsuit.
Steinberg and his companies eventually acquired more than 9% of Green Tree’s total shares before selling the shares back to Green Tree at $42 a share, about double the initial offering price, according to the federal lawsuit.
Though much of the deposition is dry and filled with financial jargon, it’s also replete with facts about Milken and the philosophies that have made him and Drexel so prosperous.
Some Milken highlights:
- On corporate raiders, a term he scorns: “I’m personally not sure what a raider is, so it’s hard for me to understand all these questions.” When confronted with published references to “raiders,” he suggested that certain individuals’ reputations as raiders existed primarily “in the eyes of those journalists who want to sell magazines and need to create something on the cover of a magazine so someone would buy it.”
- On the close-knit world of junk-bond financing: “(I) would not consider it unusual to find six or seven institutions buying anywhere from 50% to 70%” of the securities offered in an underwriting.
- On his business credo: “I would say also that in my entire career on Wall Street I have never backed out of a transaction once I’ve agreed to stand up to it, no matter how onerous it turned out to be.”
- On his personal wealth: “As I’ve stated many times in the deposition, I’m not familiar exactly with my current ownership in almost any investment. I have a large portfolio of investments which I monitor maybe once a decade and/or other people monitor it for me.” He said he had no idea how much Drexel stock he owns and he “couldn’t even approximate.”
- On journalists: “First you have to ask whether anyone pays any attention to journalists or consider his (sic) opinion worthwhile. Quite often I find people don’t believe much of what they read in publications, finding them generally to be inaccurate in most cases.”
- On management: “We consider management to be a very, very important factor in loaning money to a company, maybe the most important factor.”
- On Drexel’s operations in Beverly Hills: “Theoretically, everyone reports to me” but “I have no idea who is responsible for keeping records, or if we keep records.”
- On his role at Drexel: “We enter into approximately a quarter of a million transactions a month. My major focus is what our position is in buying and selling securities. It’s Drexel Burnham’s . . . job to keep the score. I’ve always found it in my career to be more profitable to be worried about generating business than to worry about who’s keeping score” of the profits.
- On how he records a telephone sales order in the context of his hectic trading day: “Turn around and scream at somebody . . . anyone I’m looking at. I have not filled out one of those (order) forms in my entire 16 years at Drexel.”
Milken suggested that sometimes he sells securities in a new offering the same way he might play poker, bluffing when his cards are weak. In this instance, he said he might try to make it appear that securities have been sold out even though plenty are left to sell.
Milken said that in the context of a new securities issue, “in order to make a deal look stronger when you are weak, the first response is, ‘sorry, none is available’ ”
Milken underwent extensive questioning about relations with the so-called corporate raiders, including Carl Icahn, Irwin Jacobs and Saul Steinberg--and dismissed the notion that raiders deserve any particular reputation.
“I’ve read where Citicorp, May Co. and Marriott Co. have made unfriendly offers this year for acquisitions, and I personally don’t regard them as corporate raiders,” he said.
At the end of the exhausting day-long deposition, Milken and the plaintiff’s attorneys were as far apart as when the day began:
Question: “And, Mr, Milken, would you agree that you, sir, would be considered a leader, an authority on the type of financing that Green Tree was going to do?”
Answer: “Give me the question, I don’t understand.”
Q: “Well, you yourself in the industry, the investment community, would be considered a leader?”
A: “Leader of what?”
Q: “A leader in the industry of recognizing what is a good investment and what is not a good investment?”
A: “We’ll, I’d say, you know, some things I’ve sold have gone up, and some things I’ve sold have gone down. It’s a question of which client you ask. Some might think I’m a bum, some might think I’m not a bum.”
