Drexel Faces Pressure to Settle as Ex-Traders Cut Their Own Deals
The agreement this week by a key Drexel Burnham Lambert employee to cooperate with the government dramatically strengthens prosecutors’ hands in their investigation of the investment firm, reducing their reliance on star witness Ivan F. Boesky, the notorious former stock speculator.
But the agreement by Cary J. Maultasch, 36, a stock trader in Drexel’s New York office, merely adds to a list of important witnesses who have been granted some form of immunity in exchange for their cooperation with the U.S. Attorney’s Office in Manhattan.
The growing roster of cooperating witnesses is putting tremendous pressure on Drexel to settle expected criminal charges. Drexel’s talks with prosecutors continued Wednesday, and some sources said the chances for an agreement were increasing.
As expected, Maultasch finalized a deal with prosecutors this week that will spare him from racketeering charges in two separate cases involving Drexel and a small investment firm, Princeton/Newport Partners. Lawyers involved in the case said the amount of pressure that prosecutors had applied to Maultasch, including the threatened charges, was a sign of how vital they consider his testimony.
Maultasch, a former trader under Drexel’s “junk bond” chief Michael Milken in Beverly Hills, moved several years ago to New York, where he handled stock trades on behalf of Milken’s department. One person close to the investigation said Maultasch “was significantly involved in the handling of Boesky’s account” at Drexel.
Maultasch is believed to be the one Drexel employee who can confirm Boesky’s allegations that he had an arrangement with Drexel and Milken to illegally conceal the ownership of securities and falsify records.
Those allegations are believed to be the core of the government’s case against Drexel.
To date, at least eight people linked to Drexel or Boesky have agreed to cooperate with prosecutors, including Maultasch and Boesky himself. Boesky, a hugely successful stock speculator who was implicated in the nation’s biggest insider trading scandal, was let off relatively easily in exchange for his agreement to testify against Drexel and other government targets. Although he had to pay a $100-million penalty, he was allowed to plead guilty to only a single felony count of securities fraud and was given immunity from further prosecution. Currently, he is serving a three-year prison sentence.
Because of the negative attention that Boesky has received, however, prosecutors were concerned about how persuasive Boesky’s testimony would be, especially if it were not completely corroborated.
Others who have been granted immunity include Charles Thurnher, an accountant who continues to serve as an administrator of Drexel’s Beverly Hills office. Thurnher is said to have knowledge of a list that was kept of securities transactions between Drexel’s junk bond department and companies controlled by Boesky. But a source said Thurnher’s testimony would be essentially “neutral” because, although he can confirm the existence of the list, he doesn’t have direct knowledge of the purpose of the trades or what led to them.
Little from Dahl
The one other Drexel employee known to have been granted a form of immunity is James Dahl, one of the top junk bond salesmen under Milken. Dahl’s lawyers claim that he didn’t agree to cooperate voluntarily but was forced to do so when prosecutors obtained a “compulsion order” requiring him to testify before the grand jury. The order gave him immunity for his testimony.
One source familiar with the investigation said Dahl was able to tell the grand jury little that was useful in the current investigation. But the source said Dahl gave the government information on another matter involving Drexel that may become the subject of a separate inquiry.
Dahl’s lawyers have strongly denied that he gave the government any damaging information about Drexel.
The others known to have been granted immunity in the Drexel case are former Boesky employees. They include Setrag Mooradian, who was an accountant at Boesky’s Seemala Corp.; Michael Davidoff, formerly Boesky’s head trader, and David Jachimzyk, a trader under Davidoff.
Maultasch Expected to Quit
Under his agreement with prosecutors, Maultasch could face a single criminal count, a relatively minor felony charge of falsifying books and records. But a source said there is still a possibility that Maultasch won’t be prosecuted at all criminally. The agreement also includes a settlement of Securities and Exchange Commission civil charges against Maultasch contained in an insider trading suit filed in September against Drexel and several employees. In settling the SEC charges, Maultasch agreed to be banned permanently from the securities industry.
He is still officially employed by Drexel but is expected to resign within the next several days. A Drexel official said Maultasch hasn’t been in the office in several months and had been allowed to take time off to work on his defense.
Spokesmen for both Drexel and Milken have declined to comment on Maultasch’s agreement with prosecutors. Aubrey Harwell, a lawyer for Maultasch, also declined to comment.
