U.S. Forced Milken Action, Drexel Asserts

From Associated Press

Government pressure forced Drexel Burnham Lambert Inc. to agree to dismiss bond trader Michael Milken and withhold his pay as part of a landmark securities fraud settlement, the head of the investment firm said in court papers Tuesday.

It was the first time Drexel Chief Executive Frederick H. Joseph publicly asserted that the firm opposed parts of the $650-million criminal plea agreement reached in December.

Phone Hookup Cited

Lawyers for Milken also said Joseph told employees that Drexel settled because the government planned to bring charges under the federal Racketeer Influenced and Corruption Organizations Act that could have frozen billions of dollars of the firm’s assets.


The documents were filed in Manhattan federal court as part of a challenge by Milken and his brother, Lowell, also a Drexel executive, to provisions of the criminal settlement that capped a two-year investigation of securities law violations.

“They were going to indict us under RICO . . . (and) there would be a (several hundred million) dollar forfeiture,” Joseph said Jan. 6 in an open telephone hookup with employees, the papers stated.

“We ultimately concluded the bottom line was the firm absolutely had to settle--that a financial institution cannot stand up to a RICO indictment,” he said in the papers.

The plea agreement forces Drexel to dismiss Michael Milken and withhold his more than $100 million in 1988 pay and keep at least half of Lowell Milken’s pay and fire him if he is indicted.


Joseph said in an accompanying affidavit that the Milken provisions “were initiated by the government and inserted in the plea agreement at the government’s request.”

He said Drexel opposed the actions but took them “in order to reach an overall agreement with the government.” He said Drexel would be willing to pay the Milkens if not for the pact.

Assistant U.S. Attorney John Carroll said the government would have no comment on the filings. A hearing on the Milkens’ motion is set for March 14. One week ago, Joseph filed a supporting affidavit for the government in the same case, admitting that Drexel “entered into the plea agreement voluntarily and without coercion after consulting with counsel.”

The government has said that the possibility of indictment on more serious charges does not constitute coercion and that Drexel was not threatened with RICO charges during negotiations.

The Milkens are asking U.S. District Judge Kimba Wood to reject or modify the settlement, under which Drexel has agreed to pay $650 million in fines and restitution and plead guilty to six felonies. To show Milken was under contract with Drexel, his attorney Tuesday submitted a 1975 agreement--still in effect last year--stating the high-yield “junk bond” trader is entitled to a minimum of 15% of any profits under $1 million to 35% of department profits over $8 million.