Milken Goes Public
GIVEN BOTH MILKEN’S reputation for secrecy and the rumor of an impending indictment, I was surprised by his invitation to meet him in Beverly Hills last May. He explained: “I don’t want to become a Greta Garbo.” After consulting with his lawyer, Edward Bennett Williams, he decided “to clear up misconceptions” about his financial activities. The image of a mysterious recluse is a potentially damaging one, he felt; it invites speculation as to what he might be hiding.
But although Milken had agreed to this series of interviews precisely because of his legal difficulties, he and Williams said Milken would not discuss anything touching on his “problem,” as Milken gingerly put it.
The “problem” began, at least as a legal case, in November, 1986, with Ivan Boesky, former stock speculator. Boesky had been identified by Dennis Levine, a deal maker at Shearson Lehman Brothers and then Drexel, as having paid large amounts of cash for inside information about takeovers. In December, U.S. Atty. Rudolph Giuliani allowed Boesky to plead guilty to only a single count of securities violations, but Boesky was permitted to keep secret his foreign accounts. The accounts in his wife’s and children’s names were also protected. Boesky reportedly told authorities that he had been engaged in a number of illicit stock-trading arrangements with Drexel. Giuliani then turned to Milken’s Beverly Hills operation. Subpoenas were issued to Drexel employees and clients, and a task force began poring over the company’s trading records.
Boesky told Giuliani, according to leaks to the press, that Milken and his aides had “parked” stock for him. “Parking” involves a brokerage house disguising the stock-trading activity of a client. Usually, this is accomplished by keeping stock it has bought for a client in its own name--with the profit or loss adjusted in a later transaction. The client then wouldn’t be forced to disclose a strategic position, as required by security laws--or, if he were short of cash in his account, he could meet margin requirements. Boesky paid Drexel $5.3 million in 1985; investigators are studying evidence suggesting that this was compensation for parking stock.
Drexel maintains that the fee is legitimate payment for services provided Boesky as an investment banker.
Parking is a breach of the law, but until this investigation, it had rarely been used as the basis of a criminal prosecution. As one Wall Street executive observed, “There is not a firm on Wall Street than can be sure it has not, at one time or another, committed some technical violation of these laws.” On the other hand, Los Angeles executive Boyd L. Jefferies recently pleaded guilty to stock-trading crimes, including parking, and faces a possible maximum sentence of 10 years in prison.
