House Panel to Subpoena Key Aide to Milken : Probe Involves Drexel’s Private Partnerships

A House committee is expected to subpoena and grant immunity to a key aide to Michael Milken, the head of Drexel Burnham Lambert’s “junk bond” department in Beverly Hills.

The aide is said to be Lorraine Spurge, a senior vice president in the department, who is in charge of records of customer requests to buy bonds. The subpoena, authorized in closed session by the House Energy and Commerce Committee, is intended to further an inquiry by an investigations subcommittee into whether private partnerships made up of Drexel employees improperly benefited from the purchase and sale of high-yield bonds at the expense of Drexel customers, sources close to the investigation said.

The subcommittee, headed by Rep. John Dingell (D-Mich.), for some time has been looking into evidence that partnerships controlled by Milken, his brother Lowell and other Drexel employees have been given preferential treatment by Drexel. In particular, the subcommittee is looking into whether large portions of new junk bond issues, in high demand by customers, were allocated to the partnerships, enabling them to make big profits.

Drexel has denied any wrongdoing. The subcommittee apparently is looking at aspects of Drexel’s affairs that neither the Securities and Exchange Commission nor federal prosecutors have investigated closely. Drexel is the subject of an SEC insider trading lawsuit. The U.S. attorney’s office in Manhattan is expected to bring a criminal case against certain Drexel employees within the next several weeks.

Spurge’s secretary at Drexel referred telephone calls to a firm spokesman, who declined to comment on whether a congressional subpoena of Spurge is expected. Sources said that if she testifies, anything Spurge said couldn’t be used against her but could be used in the SEC suit or a criminal case against other Drexel employees.