Backers of Milken at Drexel Rebel at Effort to Settle Case

Drexel Burnham Lambert Inc.’s settlement talks with federal prosecutors are being complicated by a rebellion of key company employees loyal to Michael Milken, head of the investment firm’s “junk bond” department, sources close to Drexel confirmed.

The loyalists, including Peter Ackerman, a top aide to Milken in Beverly Hills, and Leon Black, head of Drexel’s mergers and acquisitions department in New York, have expressed strong opposition to the settlement terms under negotiation, the sources said. In addition, sources said John Kissick, a Drexel director and the man designated to run the Beverly Hills office if Milken leaves, also opposes the settlement terms being considered. The terms apparently include severing the firm’s ties with Milken and possibly requiring Drexel to cooperate with the government’s prosecution of him.

“There is concern within the firm about selling Michael down the drain,” said one source close to Drexel’s junk bond unit in Beverly Hills. Junk bonds are high-yield, high-risk debt securities.

A Drexel spokesman, however, denied a report published in the Wall Street Journal on Friday that Ackerman and Black had threatened to resign if Drexel settles on terms that make it easier for the government to prosecute Milken.

Sources also confirmed that Warren Trepp, an executive vice president who is the firm’s chief junk bond trader, has received a “target” letter from U.S. Atty. Rudolph W. Giuliani, indicating that he too may be indicted soon.

William G. Hundley, Trepp’s lawyer, didn’t return several calls to his office on Friday.

So far, those who have received target letters include Milken; his brother, Lowell Milken; former Drexel trader Bruce Newberg; Pamela Monzert, a Drexel employee in Beverly Hills, as well as the firm itself. Two others who received letters have been granted immunity from prosecution in exchange for their cooperation.