Milken Agrees to Put Up $700 Million as Security Against Possible Penalty
Drexel Burnham Lambert’s former “junk bond” chief Michael Milken agreed Friday to put up assets totaling $700 million as security for the $1.85 billion that the government is seeking to seize from him under federal racketeering charges.
But a federal judge granted him comparatively lenient terms on the separate issue of bail. She allowed Milken to remain out of jail pending a trial on 98 criminal counts by posting a $1-million bond plus his Encino home as collateral.
In rejecting a prosecutor’s request for stiffer bail terms, U.S. District Judge Kimba M. Wood essentially agreed with Milken’s lawyer, Arthur Liman, who characterized his client as a “homebody” who had shown no inclination to flee the country.
“I believe he has all the roots in the community that anyone could have,” Judge Wood said.
Milken’s brother, Lowell, who also was named in the indictment, agreed to pledge $50 million in assets as security for the amount that the government wants to seize under the racketeering charges against him. Lowell was allowed to remain free on bail by posting a $1-million bond, plus his home and two California vacation homes that he owns.
Attorneys in the case also confirmed that a superseding indictment may be filed inthe case, which may contain additional or different charges. But it remained unclear when a new indictment may be returned.
The Milken brothers pleaded not guilty April 7 to racketeering, mail fraud, securities fraud and insider trading charges. They deny violating any laws and say they will vigorously fight the charges.
The March 29 indictment of the Milkens and former Drexel trader Bruce L. Newberg stunned Wall Street because it disclosed for the first time the staggering amounts paid annually to Michael Milken in recent years. For example, he was paid $550 million by Drexel in 1987. Liman has claimed that disclosure of his earnings and wealth will unfairly prejudice potential jurors against him.
Prosecutors are seeking $1.85 billion from Michael Milken under the terms of the Racketeer Influenced and Corrupt Organizations Act, known as RICO, which allows the government to seize an amount equal to all of the proceeds of a continuing criminal enterprise. The government claims that Milken’s junk bond operation in Beverly Hills amounted to such an enterprise because it allegedly involved defrauding customers, insider trading and securities fraud.
If the Milkens hadn’t reached agreement on putting up the total of $750 million, the U.S. Attorney’s Office in Manhattan could have asked the judge to freeze their assets or require them to post a bond for the full $1.85 billion. Under the arrangement they agreed to, the Milkens will still receive the interest earned on the amount they’ve pledged as security.
“We have agreed to do what we would otherwise do anyway, which is to preserve our assets,” Liman said.
Under Michael Milken’s agreement, he will deposit $300 million in cash or liquid assets in a bank account to be supervised by the government. He will pledge another $300 million in “illiquid” assets, mainly his interest in a series of limited partnerships, which can’t be converted easily into cash. However, if any of the partnership interests are terminated, the cash proceeds would be deposited into a second supervised account.
Milken also will eventually post an additional $100 million in cash, which is what the government estimates he will receive for his ownership stake in Drexel.
Wanted Higher Bail
Milken, currently Drexel’s largest individual shareholder, will be required to sell his 6% stake back to the firm when his employment officially ends. He will be fired once an agreement between Drexel and the Securities and Exchange Commission, announced Thursday, goes into effect. Employees who leave the firm are required to sell back their stock.
In a court hearing Friday, Assistant U.S. Atty. John Carroll had asserted that because of the severity of the charges pending against Milken, tough bail terms should be set because of risk that he might flee. Carroll asked that Milken post a $250-million “personal recognizance” bond. Carroll also asked that the full $700 million--put up as security for the potential seizure of assets--also be pledged as bail.
But the judge rejected both requests after Liman noted that Milken has worked for only one employer since he finished school, that he has been married to his wife for 21 years, that he lives within one mile of the house he grew up in, and that despite knowing for 2 1/2 years that he faced indictment on RICO charges, he hasn’t made any attempt to flee the country. All of this, Liman said, attested to his stability and the likelihood that he will actually show up at his trial.
At one point, in arguing for strict bail, Carroll had mentioned the now-dormant case against John Mulheren, the former head of a securities firm, who like Milken had been the subject of an investigation because of grand jury testimony by Ivan F. Boesky. Boesky is the former stock speculator suspected of widespread insider trading who pleaded guilty to a single charge and has been cooperating with the government. Mulheren had been arrested after he allegedly left his home with a loaded assault rifle intending to shoot Boesky.
But the reference to Mulheren led to a moment of levity in the courtroom when Liman told the judge that Milken represented no danger to Boesky. “The only thing my client wants is for me to kill him on the witness stand,” Liman said. “We’ve been waiting for 2 1/2 years to confront Mr. Boesky” in court.
