U.S. Examining Boesky, Milken Trading Links : Key Issue Is Whether Big Payment to Drexel Was From Illicit Stock Deals
Federal investigators are assembling testimony aimed at proving that the investment firm of Drexel Burnham Lambert and one of its key executives worked with stock speculator Ivan F. Boesky to accumulate or manipulate the stocks of takeover targets and other companies, according to sources and to court documents filed in related cases.
But lawyers for Drexel and for Michael M. Milken, the key Drexel executive under investigation, have been challenging the probers’ interpretations of documents and testimony presented to the Securities and Exchange Commission and to the office of U.S. Atty. Rudolph W. Giuliani of New York.
It is understood that Drexel believes it can defend a $5.3-million payment that Boesky made to the firm in 1986 and which has become one of the centerpieces of the government’s investigation. Boesky has told the authorities, sources say, that the payment represented a balancing of profits and losses incurred by Boesky and Drexel from a number of illicit stock trading arrangements between Boesky and the firm.
Key Cases in Pursuit
Drexel’s position, however, is that the fee is legitimate payment for a range of services it provided for Boesky as an investment banker.
Drexel spokesmen declined to comment Tuesday on the government’s probe beyond issuing a brief statement that read in part: “We repeatedly have stated that we know of no wrongdoing involving Drexel Burnham or our employees.”
Two key cases figuring in the government’s pursuit of Drexel are the criminal charges brought against Boesky, the former stock speculator who last November settled federal insider trading charges and on April 23 pleaded guilty to a related felony, and against his former chief trader, Michael Davidoff.
Boesky’s guilty plea, which covered a charge that he had filed false documents with the Securities and Exchange Commission regarding his accumulation of stock in Fischbach Corp., satisfied one of the conditions of his November settlement with the SEC: that he plead guilty to a single federal felony.
Davidoff earlier had pleaded guilty to a felony charge of violating minimum-capital rules at Boesky’s investment firm. The rules are designed to assure that brokerages have adequate capital to meet their obligations.
The Boesky charge is important, sources said, because Fischbach stock was heavily traded by Drexel clients; the Fischbach company was ultimately acquired after a bitter fight by Victor Posner, a Miami financier who is also a Drexel client.
That suggests that the Fischbach matter will figure in any criminal or civil charge that might be brought against Drexel or Milken.
According to the government’s charge against him--which was based largely on Boesky’s own testimony--Boesky agreed in early 1984 to accumulate for a co-conspirator more than 10% of Fischbach under an agreement by which he would be reimbursed for any losses he incurred in the stock. Boesky later filed required disclosures of his holdings to the SEC without also disclosing the reimbursement agreement.
Sources say Boesky identified the conspirator referred to in the federal charge against Boesky as Milken, whose renowned “junk bond” underwriting and trading office had financed Posner’s pursuit of the company.
Also assisting the government in its investigation is Charles Thurnher, an accounting executive in Drexel’s West Coast headquarters in Beverly Hills with key knowledge of the office’s computer system. Thurnher has been offered immunity from prosecution, sources say, but his contribution to the investigation remains unclear.
“Thurnher’s information is not decisive,” says one source familiar with the probe who confirmed that Thurnher was offered immunity. “He’s giving a lot of information that nobody denies; the problem is the interpretation one puts on it.”
