First Conviction in Drexel Probe: Aide at Beverly Hills Office Is Guilty of Perjury

The federal investigation of Drexel Burnham Lambert claimed its first guilty verdict Wednesday when a jury convicted a 26-year-old trading assistant from the firm’s Beverly Hills office of perjury and obstruction of justice.

A jury deliberated for only four hours before concluding that Lisa Jones of Sherman Oaks had lied repeatedly in January, 1988, during testimony to a grand jury investigating Drexel, the head of its “junk bond” department, Michael Milken, and a small securities firm, Princeton/Newport Partners. She was convicted on five counts of perjury and two of obstruction of justice. But the jury acquitted her on one obstruction count.

Jones, who had cried during her testimony and had again been in tears during the brief deliberations, was comforted after the verdict by two women friends who had accompanied her from Los Angeles. She was then led silently from the courtroom by her lawyer.

Jones faces a maximum sentence of 35 years in prison and a fine of up to $1.7 million. Under new federal sentencing guidelines, she will almost certainly have to spend time in prison, although prosecutors said they hadn’t yet calculated the minimum possible sentence. But if she had been convicted on only one count she would have been required to serve from 10 to 16 months in prison.

The conviction raises the possibility that Jones could receive a longer sentence than was imposed on either Dennis B. Levine or Ivan F. Boesky, the two Wall Street figures whose guilty pleas and cooperation with the government led to the Drexel investigation and a chain of other Wall Street cases. Levine was sentenced to two years in prison and Boesky to three years.

Rejected Plea Bargain

U.S. District Judge Leonard Sand set sentencing for May 22. He allowed Jones to remain free on bail.

Brian O’Neill, Jones’ defense attorney, throughout the trial had portrayed her as a “scapegoat” and “victim” in the government’s quest to prosecute higher-ups at Drexel and Princeton/Newport. He said after the verdict that she “got stuck paying the price for whatever occurred.” He called the outcome “tragic” and said Jones was “a little person run down by a truck.” O’Neill said he plans to appeal.

But Bruce Baird, head of the securities fraud unit in the U.S. Attorney’s Office in Manhattan, said: “We think justice was done.” He added: “We think that whenever people lie to the grand jury, we’re not doing our job if we don’t prosecute them.”

Mark Hansen, the prosecutor who tried the case, rejected criticism by Jones’ supporters that the government had been unduly harsh in bringing the charges and vigorously prosecuting her. He said that during the grand jury proceedings she had repeatedly rejected chances offered to her by prosecutors to change her testimony and tell the truth.

“She is nobody other than a foolish young woman who made a dumb choice despite numerous opportunities to make the right choice,” he said.

Jones had been called to New York in January, 1988, to testify before a grand jury looking into charges that Princeton/Newport Partners had illegally “parked” bonds with Drexel in a complicated scheme meant to help Princeton/Newport evade taxes. Under the scheme, the trades between Princeton/Newport and Drexel allegedly were rigged so that Princeton/Newport would get the securities back at a fixed price.

Presented as Scared, Confused

Jones denied to the grand jury that that she was aware of any illegal parking. But during the trial, prosecutors presented tape recordings of telephone conversations between Drexel and Princeton/Newport, including one tape in which Jones was heard discussing the trades with William Hale, a Princeton/Newport trader. Hale testified against Jones during the trial.

He presented Jones as a scared and confused minor employee at Drexel who had been intimidated by government investigators and wasn’t aware that she was involved in any illegal activity.

Testimony in the trial disclosed that Jones had run away from her New Jersey home at the age of 13 and obtained a job as a bank teller in Los Angeles by lying about her age. She eventually was offered a job at Drexel and worked her way up to being a trading assistant in the junk bond department, working in the same trading room as Milken. In 1988, she earned $117,000 in salary plus a $45,000 bonus, helping Drexel traders execute their transactions.

At the time of her grand jury testimony, Jones had been represented by the law firm of Cahill Gordon & Reindel, which was Drexel’s main outside law firm.

Five Princeton/Newport partners have since been named in a separate indictment that includes racketeering and securities fraud charges. They deny any wrongdoing and are awaiting trial.

Drexel Backs Jones

More recently, Drexel has agreed to plead guilty to six criminal counts, including one involving Princeton/Newport. But the firm hasn’t formally entered its plea yet pending settlement of separate civil charges brought by the Securities and Exchange Commission.

Milken, who as head of Drexel’s junk bond department in Beverly Hills was behind much of the firm’s success and also much of its legal problems, has been notified by prosecutors that he too is likely to be indicted soon. But he denies breaking any laws.

While the deliberations were under way, Richard Sandler, a longtime friend of Milken’s who is one of his main attorneys, stopped in the courtroom to offer sympathy and encouragement to Jones. He said he was present because “she is a person that I care about.” Drexel, too, has been supportive of Jones throughout the case, continuing to pay her salary even though she is on leave and picking up much of her travel and legal expenses.

In a statement after the verdict, Steven Anreder, a Drexel spokesman, said: “Lisa Jones was fondly regarded as a warm and highly industrious individual” by the people she worked with. He said: “The verdict today, therefore, is a very sad event which causes us a great deal of sorrow.”

Anreder said that Jones was still officially on leave and that he didn’t know if her employment status would change as a result of the verdict.