11th-Hour Settlement in Milken Case Not in Cards, Attorneys Say

Lawyers for Michael Milken, the head of Drexel Burnham Lambert’s “junk bond” operation, confirmed that they have held talks with federal prosecutors on the possibility of Milken pleading guilty to reduced charges. But they said the talks were terminated and an indictment is still expected.

According to sources, Milken’s lawyers over a week ago had been called in by the U.S. Attorney’s Office in Manhattan. Prosecutors offered Milken a chance to plead guilty to two felony counts and avoid an indictment on more serious racketeering charges, one source said.

But on Friday, through a Milken spokesman, the lawyers said the offer had been rejected and that no further discussions were planned.

“There are no discussions going on between the U.S. Attorney’s Office and Michael Milken’s attorneys,” the spokesman said, adding for emphasis: “No discussions whatsoever.” In a prepared statement, the spokesman also said Milken “will vigorously fight any charges that may be brought against him, and his lawyers are preparing for his defense.”

Milken’s aides took pains Friday to dampen speculation that he might plead guilty to criminal charges. Nevertheless, it wasn’t clear whether a last-minute settlement could still come about if prosecutors made a substantially new offer.

More Than One Meeting

John Carroll, one of the assistant U.S. attorneys handling the case, declined to comment.

According to one source close to Milken, the offer of a plea agreement was a “routine” offer normally made by prosecutors shortly before an indictment is brought. A guilty plea would save the government the expense of going to trial and eliminate the risk of an acquittal by a jury.

The source confirmed that Milken’s lawyers met with prosecutors more than once to discuss the offer.

Another source close to the case said Milken assured colleagues in Drexel’s Beverly Hills offices on Friday that he wasn’t about to reach a settlement.

Michael Armstrong, a lawyer for Milken’s brother, Lowell Milken, who also is expected to be indicted, said he too had recently been approached by prosecutors with an offer of settlement. But Armstrong said he flatly rejected the offer.

“I told them to forget about it,” he said. Armstrong has maintained that Lowell Milken was only a minor player at Drexel and that he hadn’t been involved in any of the alleged wrongdoing. Lowell is also employed in the high-yield department in Beverly Hills.

As reported, Drexel has tentatively agreed to plead guilty to six criminal charges, cooperate with government investigators and pay penalties totaling $650 million. The settlement covers only the firm itself, however, and not the Milken brothers and several other employees who have been targets of the investigation. In its plea agreement, Drexel agreed to fire Milken once the firm enters its guilty plea and to withhold his 1988 bonus, estimated at $200 million.

‘Harmful Message’

Drexel’s settlement is contingent on the firm also reaching a settlement with the Securities and Exchange Commission of pending civil charges. As a condition for a settlement, the SEC is said to be demanding that Drexel move the high-yield department from Beverly Hills back to the firm’s New York headquarters.

Both of California’s U.S. senators and seven California members of the U.S. House of Representatives this week sent letters to SEC Chairman David S. Ruder, protesting the demand that the department be moved back to New York.

In his letter, Sen. Alan Cranston noted that Drexel employs more than 1,000 people in California and has raised over $12.5 billion since 1980 for non-investment-grade companies in the state. In their letters, both Cranston and Sen. Pete Wilson also said that by forcing Drexel to move the important division back to New York, the SEC might send a harmful message that securities firms shouldn’t have important operations anywhere but in New York.

Mary McCue, a spokeswoman for Ruder, confirmed that he had received the letters. But she declined to comment on what the SEC’s response would be.