SEC Calling for Drexel to Cut Ties to Milkens : Ban Would Apply Even if Cleared of Charges
Drexel Burnham Lambert Inc. will be required to sever all ties to its “junk bond” chief Michael Milken and his brother, Lowell, under terms of a settlement being finalized between Drexel and the Securities and Exchange Commission, sources said.
Although not explicitly stated in the agreement, the ban would apply even if the Milken brothers are eventually cleared of expected criminal charges, individuals close to the case said. Lowell is also an employee of the high-yield, or junk bond, department in Beverly Hills. The agreement also prohibits Drexel from having any business relationship with the Milkens, a move that could prevent Drexel employees from even discussing future deals with them, the sources said.
The SEC commissioners are likely to approve the settlement next week, possibly in a closed session scheduled for Tuesday, individuals close to the talks said.
The SEC and Drexel attorneys have been negotiating for weeks on settling an SEC civil lawsuit filed last September. It accuses Drexel, as well as the Milken brothers and several other Drexel employees, of defrauding customers, market manipulation, insider trading and keeping false books and records. Settling with the SEC on the civil charges had been the main obstacle holding up Drexel’s announced plans to settle separate criminal charges pending against the firm.
The provisions concerning the Milkens in the SEC settlement go beyond those contained in Drexel’s agreement with federal prosecutors in New York, in which Drexel agreed to plead guilty to six criminal counts and pay $650 million in penalties. That agreement, made public in January, simply requires Drexel to fire Michael Milken and to suspend his brother without pay if he is indicted.
May Be Delayed
The Milkens deny any wrongdoing, and criminal charges haven’t been filed against them yet. But they have received “target letters” from the U.S. Attorney’s Office in Manhattan notifying them that they are likely to be indicted.
Final court approval of both the SEC settlement and the Drexel plea agreement on criminal charges may be delayed, however, because of a stay imposed in the SEC case by the U.S. 2nd Circuit Court of Appeals in New York.
That stay, granted Thursday, prevents U.S. District Judge Milton Pollack from taking any action in the SEC case until lawyers for the Milken brothers and Pamela Monzert, another Drexel employee, can file papers with the U.S. Supreme Court in a last-ditch effort to get Pollack removed from the case. The lawyers maintain that Pollack has a conflict of interest, and they believe that he is biased against the defendants in the case.
As of late Friday, the papers hadn’t yet been filed with the Supreme Court. The stay was to remain in effect for 30 days.
As reported two weeks ago, the settlement terms reached with the SEC also will allow Drexel to maintain its junk bond operation in Beverly Hills. The SEC earlier had been pressing for Drexel to move it back to the firm’s headquarters in New York. The settlement also includes a number of provisions aimed at monitoring Drexel’s operations closely and preventing future violations of securities laws.
No Word on Challenge
An SEC spokesman declined to comment on the settlement talks. Steven Anreder, a Drexel spokesman, also declined to discuss the pending settlement.
A personal spokesman for Michael Milken and one of Lowell Milken’s lawyers refused to say if the Milkens are considering challenging the SEC settlement in court.
They already have filed a legal challenge to Drexel’s plea agreement on the criminal charges. A court hearing on that challenge is scheduled for Tuesday in New York before U.S. District Judge Kimba M. Wood, who is presiding over the Drexel criminal case. The Milkens are challenging the provisions in the plea agreement that require Drexel to fire Michael and suspend Lowell if he is charged, and to withhold many millions of dollars in compensation that they normally would have been paid for work done in 1988.
