Federal prosecutors claimed Tuesday that Drexel Burnham Lambert’s “junk bond” chief Michael Milken and his brother, Lowell Milken, don’t have any legal right to prevent Drexel from entering into a plea agreement that would deprive the brothers of their jobs and many millions of dollars in compensation.
Instead, the U.S. Attorney’s Office in New York suggested that the brothers sue Drexel in civil court if they believe that any contractual rights to their jobs or bonuses have been violated.
The statements were made in court documents filed in response to the Milken brothers’ challenge to the plea agreement. The agreement, which hasn’t been put into effect, would require Drexel to plead guilty to six criminal charges and pay $650 million in penalties. The agreement with prosecutors is to go into effect only after Drexel settles separate civil charges filed by the Securities and Exchange Commission.
Suspension and Firing
The tentative plea agreement with the U.S. Attorney’s Office, made public Jan. 25, also would require Drexel to fire Michael Milken immediately and withhold his 1988 bonus, estimated at up to $200 million. It would require the firm to suspend Lowell Milken--also an employee of the high-yield, or junk bond, department in Beverly Hills--if he is indicted on criminal charges and withhold half of the total compensation he was owed for 1988.
The court papers disclosed for the first time that Lowell Milken’s bonus and salary for 1988 would have totaled at least $26 million.
Both brothers are expected to be indicted on racketeering and securities fraud charges stemming from their activities at Drexel. But no criminal charges have been filed yet, and both have denied any wrongdoing.
A hearing on the Milkens’ objection to the plea agreement has been scheduled for March 14 before U.S. District Judge Kimba M. Wood.
The court documents filed Tuesday didn’t shed any light on why the U.S. Attorney’s Office insisted that the actions against the Milken brothers be included in Drexel’s plea agreement. Prosecutors so far haven’t offered an explanation. Instead, in the court filing, the prosecutors concentrated on the narrow legal argument that the brothers don’t have any standing to interfere with a plea agreement voluntarily entered into by Drexel with the government.
Plea Called Voluntary
The prosecutors refuted claims made by the Milkens’ lawyers that the provisions amounted to unconstitutional action by the government to deprive individuals of their property. In the court papers, the assistant U.S. attorneys argued that because Drexel was entering into the plea agreement voluntarily, it is Drexel and not the government that would be taking the steps against the Milkens.
Drexel Chief Executive Frederick H. Joseph, in an affidavit filed Tuesday with the government’s papers, confirmed that Drexel’s board had voluntarily decided to enter into the plea agreement. But 2 1/2 weeks ago, a Drexel spokesman had claimed that the provisions concerning the Milkens’ compensation “were not volunteered by Drexel.”
The prosecutors also claimed Tuesday that the brothers don’t have any employment contract that gives them a right to their jobs or fixes the amounts of their bonuses. They assert, too, that the brothers’ lawyers haven’t presented evidence showing why they are owed the money. The prosecutors said the Milkens haven’t “described what work, if any, they did for Drexel in 1988 that would justify their staggering compensation claims.”
The Milkens’ lawyers in their own earlier court papers had claimed that the amounts of the bonuses were established by formulas fixed by contractual agreements with Drexel.
But the prosecutors claimed that the only formula at Drexel is one that determines how much of the firm’s overall yearly bonus pool goes to the high-yield department. After that, the papers claim, it has always been up to Michael Milken to determine how much each individual gets, including himself and his brother.
The prosecutors’ court filing also included an affidavit from Joseph confirming that the Milkens don’t have a written employment contract.
A personal spokesman for Michael Milken said his lawyers were still reviewing the government’s papers, filed late Tuesday, and wouldn’t have any immediate comment.
Michael Armstrong, Lowell Milken’s lawyer, said: “We are studying it and we’ll reply at the appropriate time.”