THE MILKEN ARRAIGNMENT : Milken Brothers Plead Innocent : Lawyer Says Disclosure of Their Income May Prevent a Fair Trial

“Junk bond” innovator Michael Milken and his brother Lowell pleaded innocent Friday to racketeering, securities fraud and other charges in a federal courtroom swollen with Milken supporters and others eager to witness the preliminary step of the history-making trial.

Tanned and smiling in a pin-striped suit and deep red tie, the head of Drexel Burnham Lambert’s high-yield bond operation in Beverly Hills answered “not guilty” in a firm voice when asked how he would plead by U.S. District Judge Kimba M. Wood. After Lowell Milken entered the same plea, Michael Milken, his wife, Lori, and his attorneys swept down the front steps of the federal courthouse to the cheers of dozens of supporters.

One shouted, “Atta boy, Mike.” Others wore hats that said, “We believe in you, Mike,” in a scene that more evoked the appearance of victorious political candidates than accused felons.

In an indictment handed up March 30, the brothers and former Drexel trader Bruce L. Newberg were accused of turning the investment house into a continuing criminal enterprise. The government has asked for the forfeiture of $1.85 billion in the case, the most important in the 3-year-old Wall Street corruption scandal.

As the Milkens sped away in a limousine, defense attorney Arthur L. Liman told reporters he was “deeply concerned” that Michael Milken would not be able to receive a fair trial because prosecutors had “broadcast” his 1987 compensation of $550 million in the indictment.

“The issue here is whether or not Michael Milken can get a fair trial notwithstanding the fact that he has made that kind of money,” he said, contending that including the figure in an indictment was “unprecedented.”

The figure “will be on the minds of thousands of people--including the people who will be jurors,” Liman asserted.

A spokesman for Milken declined to say whether the defense plans any motions to try to redress the effects of the publicity.

Newberg did not appear for arraignment because he recently injured his back while skiing, according to his attorney, Gerald Lefcourt, who declined to say where, or precisely when, the accident took place. Newberg is now scheduled to be arraigned April 25.

While 42-year-old Michael Milken has become a familiar public figure, his brother Lowell had succeeded until Friday in keeping his face out of the press. Lowell bears a marked resemblance to his older brother but is several inches shorter and has a deeper voice.

Another Hearing Set

Wearing a gray suit, light blue shirt and blue spotted tie, Lowell Milken also smiled and looked relaxed as he stood to his brother’s left during the 10-minute arraignment. The Milkens were released on their own recognizance.

During the arraignment, the Milkens’ wives sat in the second row of the audience of several hundred in the courtroom.

Assistant U.S. Atty. John Carroll told the judge that prosecutors and defense attorneys have made “substantial progress” toward resolving whether they will be required to post bond during the trial. The prosecution had reportedly earlier sought posting of a $1-billion bond to make it unnecessary for the government to freeze the defendants’ assets, as it is entitled to do under the federal anti-racketeering statute.

A separate hearing will be held before Wood on Tuesday to take up that issue.

Michael Milken intended to make a few brief comments after the arraignment but decided it would be “physically impossible” to do so because of the throng of television cameramen and reporters who had waited for hours for his appearance, a Milken spokesman said.

The Milkens had eluded the press awaiting their arrival by slipping into the courthouse at 11 a.m., more than three hours before the arraignment was scheduled. As they awaited the proceeding, they stayed in a small room next to the courtroom, where a federal marshal stood guard to shoo away the curious.

Among the Milken friends on hand was Ralph Ingersoll II, chairman of Ingersoll Publications Co., a Princeton, N.J.-based newspaper chain. Wedged between TV cameramen and reporters as they pursued the defendants and their attorneys outside the courthouse, Ingersoll protested, “You people are animals!”

Exercising 1st Amendment

Among the other Milken supporters were a number of well-dressed young men and women from the investment house. A report that federal prosecutors had discouraged Drexel officials from organizing a demonstration in support of Milken was untrue, prosecutor Carroll said.

“If they want to exercise their First Amendment freedoms, that’s not our business,” he said.

While the Milkens are probably still not as well known to the public as another Wall Street scandal figure, speculator Ivan F. Boesky, the arraignment drew a larger crowd than Boesky’s 1987 sentencing, according to people who attended both.