FALLOUT FROM THE DREXEL CASE : Milken’s Reaction : ‘Junk Bond’ King Believes Drexel Sold Out Workers

Michael Milken told a friend Thursday that he expects to be indicted but believes that Drexel Burnham Lambert sold out lower-level employees by agreeing to plead guilty to securities crimes.

Publishing executive Ralph M. Ingersoll, a friend and business associate of Milken, said the “junk bond” king expressed concern about the impact of the settlement on other Drexel employees under criminal investigation.

“From an emotional viewpoint, his overriding reaction now is one of concern and empathy for the people at Drexel for whom the settlement does not end the nightmare,” Ingersoll said in an interview after a lengthy telephone conversation with Milken on Thursday. “He regrets the appearance that the firm’s capital appears to have been a larger consideration in the settlement than the people with whom he works who are still being investigated.”

Some Drexel employees have already received immunity from prosecutors in exchange for their cooperation. But the plea bargain unveiled Wednesday did not extend immunity to any other employees.

Further, the New York securities firm agreed that employees who are indicted will have to leave the firm, either by resigning or being fired, according to sources.

Milken told Ingersoll and others that he expected to be indicted on criminal charges regardless of whether Drexel had settled. But he was reportedly angered that the company did not protect lower-level employees as part of the agreement.

When E. F. Hutton pleaded guilty to 2,000 felony counts in connection with an elaborate check-kiting scheme, the New York brokerage house struck a deal with the government to avoid criminal charges against any individuals.

However, Drexel’s bargaining position Michael Milken had eroded because it fought the government so strenuously for a long period, and the firm probably was unable to protect any of its lower-level employees, according to a lawyer familiar with the negotiations.

A lawyer for one Drexel employee said Wednesday that the agreement may actually ease the government’s drive to indict some “foot soldiers.”

But the settlement creates potential legal difficulties for Milken and any others who might be indicted. Some of the six crimes to which Drexel will plead guilty are expected to involve Milken’s activities as head of its junk bond operation in Beverly Hills.

Also, prosecutors can use the lack of immunity for other Drexel employees to try to pressure them to cooperate against Milken. The strategy turned several key Drexel employees and reportedly played a significant role in persuading the firm to agree to plead guilty.

Milken has been the lead individual targeted by the government’s mammoth two-year investigation into a wide range of alleged securities violations.

He has maintained his innocence and told Ingersoll and other associates Thursday that he will continue to fight the earlier civil suit brought by the Securities and Exchange Commission as well as the anticipated criminal charges.

Was on Vacation

“He continues to believe that he can mount a vigorous and effective defense, and when all the facts play out in court, he will be exonerated,” said Ingersoll, the publisher of more than 200 newspapers.

Milken, who lives in Encino, was in New York with his family for a vacation trip Wednesday when Rudolph W. Giuliani, the U.S. attorney in Manhattan, announced that Drexel had ended months of negotiations by agreeing in principle to plead guilty to six felonies and pay a record $650 million in penalties.

Drexel’s decision followed a 16-6 vote by its board in favor of settling rather than fighting anticipated criminal charges in court. The board decided that waging a long legal battle would be more costly and riskier than settling with the government.

Milken supporters contend that the majority of the board was interested solely in protecting their personal investments in the privately held company, which could have been jeopardized by the racketeering charges that the government reportedly intended to press without an agreement.

Milken associates said Frederick H. Joseph, Drexel’s chief executive, telephoned Milken shortly before Giuliani’s announcement. The conversation was described by one associate as “cool, factual, just to relay the information.”

Stressed Financial Terms

Milken has been largely responsible for the extraordinary growth and profitability of Drexel in the 1980s, and several associates said he felt betrayed personally by Joseph, who had been a staunch defender of Milken.

According to one associate, Milken was particularly disturbed that Joseph had put the decision in cold financial terms during a 15-minute explanation to employees Wednesday over the firm’s internal communications system.

“In the middle of his talk, Fred took the time to spell out that the settlement would reduce the value of the company’s shares by $10 to $15,” said one Milken ally. “That signaled to Mike what the decision had come down to.”

When another Milken associate, who has had several conversations with him in the past two days, was asked Milken’s reaction to the firm’s decision, he said: “How would you feel? Put yourself in his position and ask yourself how you’d feel. Just because somebody has a lot of money doesn’t mean he doesn’t feel the same emotions any other people feel.”

‘Names Can Hurt’

Milken expressed a similar sentiment last month when he told a Los Angeles Daily News reporter: “Didn’t your parents tell you that sticks and stones can break your bones, but names will never hurt you? Well, names can hurt you.”

The impact of the widely publicized probe was also felt last Saturday at the bar mitzvah of Milken’s eldest son, Lance, at the Stephen S. Wise Temple near Bel-Air.

According to a guest, the teen-ager stood before the group at the end of the service and spoke about the deaths of two of his grandparents. He ended by saying, “It is extremely important for a family to have the strength we have, not only when my grandparents left us but also at a time when my father is having such difficulty.”