Michael Milken’s defense strategy is likely to evolve in two directions in the coming weeks: convincing a federal court jury that some of his trusted former associates are liars out to save their own skin, and challenging some charges against him as technical rather than criminal.
A key decision for the defense during the trial, which is likely to begin later this year, will probably be whether to put Milken on the stand to rebut the claims anticipated from convicted stock speculator Ivan F. Boesky and from several Drexel Burnham Lambert employees cooperating with prosecutors.
He will not challenge all of the facts brought out by the government in its 98-count indictment. But his lawyers are certain to argue that many of those facts do not constitute criminal behavior in instances such as stock parking, a practice used to conceal ownership of shares.
‘Who You Believe’
“You can respond to the parking kinds of situations by using motions to fight them and saying that they were not actually violations,” said Don D. Buchwald, a defense lawyer in New York who often represents white-collar criminals. “Then there are the charges where there can be no doubt that the conduct was criminal, and the question comes down to who you believe.”
It is the second category of allegations where Milken is believed to face the most potent government evidence--the testimony of several former Milken associates who are expected to take the stand against him.
One of those almost certain to testify is Boesky, who is serving a prison term for insider trading. Many of the charges against Milken stem from his extensive dealings with Boesky, including a $5.3-million payment to Drexel by Boesky in March of 1986.
The government argues that the money was payment for Milken illegally holding stock owned by Boesky, a form of parking. Milken’s lawyers will contend the money was a legitimate payment for consulting services, which is how it was identified on an invoice at the time.
“The defense will attack Boesky and it will be over the $5.3 million,” said William G. Hundley, a Washington defense lawyer who represents a Drexel employee. “Was it for consulting or something else? That’s what the jury will have to decide.”
One of Milken’s lead lawyers made clear Wednesday that challenging Boesky and others will be a key tactic.
“The charges against Mr. Milken are essentially a repetition of the accusations made by Boesky and others as they bargained for leniency and immunity from prosecution,” said Arthur L. Liman.
Attacking Boesky and other former Milken associates will involve trying to persuade jurors that the witnesses are lying to protect themselves or to win better treatment from the government. But discrediting many of the witnesses is likely to be difficult.
“If Milken dealt directly with those folks, they can be potent witnesses to a jury,” Buchwald said.
Perhaps the most crucial trial decision will be whether to put Milken on the witness stand. He would be the person best able to rebut the testimony of witnesses against him. But testimony by a defendant always entails a high degree of risk.
“Michael is incredibly rich and can appear somewhat arrogant,” said one defense lawyer, who asked that his name not be used. “That can present a problem with a jury.”
On the other hand, Milken can be charming, polite and persuasive, and those characteristics could work well on a jury.
Milken’s defense lawyers have been assembling evidence for more than two years, and most lawyers said Wednesday’s charges contained few if any surprises.
“This tracks the SEC civil case filed last fall, and I don’t think there are any great surprises,” said Ira Lee Sorkin, a New York defense lawyer and former regional administrator of the Securities and Exchange Commission. “They were really shooting for these guys, and this is a heavy indictment with a lot of counts.”
The 98 counts were regarded by several lawyers as an unusually high number, creating an enormous burden for defense lawyers who must analyze each allegation and assemble their case.
It is possible that the defense task will become more difficult later if the government files a second indictment to take the place of the charges brought Wednesday. The new charges, called a superseding indictment, would contain new allegations and possibly name additional defendants.
“The U.S. attorney’s office has threatened to indict so many other people that I think it would be safe to say that they will follow their normal procedure and have several superseding indictments,” said a lawyer who asked that his name be withheld.
Buchwald agreed that new charges are likely before the case goes to trial, saying: “I can’t remember a time in a substantial white-collar criminal case here where the government went to trial on its first indictment. It is very, very frustrating for defense lawyers because they end up with moving targets.”
Defense lawyers can end up spending weeks researching specific allegations only to have them replaced with new charges.
However, Milken has assembled crack lawyers from several prominent firms, most notably New York’s Paul, Weiss, Rifkind, Wharton & Garrison and Washington’s Williams & Connolly.
Now that the charges are filed, the defense will begin filing motions on technical and procedural questions aimed at discovering information about the nature of the prosecution’s evidence and at weakening the government’s case by having some charges dismissed before trial.
Federal rules of evidence require the government to provide the defense with copies of testimony to the grand jury and the FBI by the witnesses against Milken. But the rules do not require the material to be provided until the witnesses actually testify in court.
Common practice in New York federal courts and most other jurisdictions, however, is to provide that material several days or weeks in advance of the court testimony to allow for a smooth trial.
Defense lawyers do not, however, have the automatic right to interview government witnesses before they testify. While some witnesses do agree to pretrial sessions with the defense, few if any are expected to do so in the Milken case. That means that the defense cannot be sure what the witnesses will say on the stand until they actually testify.
“You have no right to interview Boesky, and if Boesky says he won’t do it, that’s it,” said R. Stan Mortenson, a Washington defense lawyer. “That is one of the biggest hurdles for a defense lawyer.”
Federal rules require a trial to be held within 70 days of the filing of a criminal indictment, but no one expects Milken to go on trial that quickly.
The court will undoubtedly allow more time to hear the barrage of complex motions expected to be filed by the defense, and the clock will start all over again if the government files a superseding indictment with new charges and possibly new defendants.
PENALTIES THE GOVERNMENT IS SEEKING
Under an indictment announced Wednesday, co-defendants Michael Milken, Lowell Milken and Bruce L. Newberg could be forced to forfeit up to $1.85 billion overall in allegedly ill-gotten gains. They also could face fines of up to $3.7 billion each on two key racketeering charges.
If convicted of all 98 counts against him, Michael Milken would face a prison term of up to 300 years. Lowell Milken, indicted on 13 counts, faces a prison term of 95 years, and Newberg, indicted on 22 counts, faces 140 years in prison.
The $1.85 billion being sought from the three defendants under the forfeiture provision of the federal Racketeer Influenced and Corrupt Organizations Act consists of:
$1.2 billion in salaries from 1984-1987:
$1.1 billion from Michael Milken.
$120 million from Lowell Milken.
$6.1 million from Bruce L. Newberg.
$204 million in corporate finance fees.
$157 million in accumulated interest.
$122 million worth of Drexel Burnham Lambert stock owned by the three defendents.
$46 million in Drexel trading profits on allegedly fraudulent deals.