Drexel Develops Strong Ties to Political Powers : Bradley Is Among Prominent Figures Who Are Part of Aggressive Lobbying by Junk Bond Firm

Mayor Tom Bradley stepped to the podium of the “Predators’ Ball” and introduced the evening’s star attraction, Michael Milken, as “that man of genius, that man of courage, that man of vision, that man of conviction.”

The welcoming speech in April, 1987, at the renowned “junk bond” conference sponsored by Drexel Burnham Lambert illustrates how Bradley has become an important part of an elaborate political operation orchestrated by Milken and the investment firm. The lavish praise from the mayor came several months after a pair of Drexel officials had pleaded guilty to illegal stock trading, and Milken himself was facing a federal investigation that would later lead to a criminal indictment on racketeering and securities charges.

Officials Cultivated

Drexel and its loyal network of employees, clients, friends and associates have cultivated dozens of elected officials--from members of Congress to Orange County supervisors--by paying at least $2 million in campaign contributions, honorariums and lobbying fees since 1983, government records show.

At the same time, according to a Times study of Drexel’s lobbying practices, the controversial investment firm has sought to influence legislation, obtain government business and solicit favors.

The largess has taken various forms:

* Two members of Congress, Reps. Stephen L. Neal (D-N.C.) and Carlos J. Moorhead (R-Glendale), were paid $2,000 each in honorariums in 1986 to stroll through the command center of Drexel’s junk bond operation in Beverly Hills and chat with employees. While most congressmen usually must give a speech to earn such fees, it is not unusual for corporations to offer honorariums to legislators who tour their facilities.

In October, 1987, Neal was one of five House members who spoke on the floor against provisions in an omnibus spending bill that were designed to discourage the use of junk bonds in financing corporate takeovers. These provisions were later dropped from the final legislation. Neal insisted in an interview that the Drexel tour had nothing to do with his floor speech.

* Drexel has contributed generously to the campaigns of four of five Orange County supervisors who in 1987 provided the brokerage house with a coveted--and lucrative--contract to underwrite millions of dollars worth of construction bonds. The development is being built in the district of Gaddi Vasquez, whose campaign received $1,000 from Drexel the same month the firm was picked as the project’s senior underwriter.

Vasquez said there was no connection between the Drexel contract and the firm’s contributions. If Drexel executives thought they were buying influence or access, Vasquez said, “then they were grossly mistaken.”

Civil Suit Filed

Late last year, county supervisors quietly dismissed Drexel from financing the project after a civil suit alleging securities fraud was filed against the firm in September by the Securities and Exchange Commission. A county official, who asked not to be identified, said Drexel executives were “disappointed” about losing potentially millions of dollars in commissions and fees but “they understood.”

* Bradley, who has received $72,700 in Drexel campaign contributions since 1983, helped initiate a campaign several months ago to bring pressure on the Securities and Exchange Commission to drop its demand that Drexel move its junk bond operation to New York. Drexel spokesman Steven Anreder told The Times in January that the firm solicited Bradley’s help. The mayor then contacted Rep. Tony Coelho (D-Merced) to arrange what one Coelho aide described as “some coordinated effort” to persuade the SEC to drop its demand.

A Bradley spokeswoman has acknowledged that the mayor called Coelho but said the phone call was spontaneous and not made at the request of Drexel.

In all, Drexel enlisted nine members of the California congressional delegation--at least seven of whom had been paid campaign contributions or honorariums by the firm--to lobby the SEC. As part of its tentative settlement of the suit, the SEC agreed to permit Drexel to keep its junk bond department in Beverly Hills.

Drexel’s extensive political activities in Washington and California are an accepted and normal part of day-to-day business, spokesman Anreder said.

“There are public policy issues in which Drexel has an interest, and our government affairs efforts are part of that educational process, which is used by us and many other corporations and business groups,” he said. “Our contributions are part of our involvement in the political process and are disclosed as required by law.”

No Laws Violated

There is no indication that Drexel violated any laws governing campaign contributions, but the company’s political activities appear to be among the most active of any Wall Street firm.

Drexel has given more money to city and county officials in California than its competitors in the investment field, state campaign records show.

On the federal level, Drexel in 1987 gave members of Congress $49,500 in honorariums--nearly twice the amount paid by any of its main competitors in the junk bond field, according to a study by Common Cause.

Drexel also has used charity causes to align itself with prominent public officials.

Rep. Henry A. Waxman (D-Los Angeles) recalls that in 1987 he was invited to make a speech in New York City to a Drexel-sponsored conference on AIDS. He received $5,000, which he later gave to charity, to speak to investors interested in the health industry. According to Waxman, the organization was a Drexel subsidiary known as Washington Forum.

State Controller Gray Davis was the lone prominent public official seen at the Beverly Hilton Wednesday for a charity luncheon dinner held to honor the Milken family.

“I was pleased to join the other distinguished members of the honorary committee in recognizing the generous contributions of the Milken family trust to some deserving children with special disabilities,” Davis said.

Davis received $66,000 in campaign donations over the last four years from the Drexel network--consisting of the investment firm, its employees, the Milken family, Columbia Savings & Loan Assn., its employees and its founding Spiegel family.

Role as Controller

Davis declined to discuss his personal or business relationship with Milken. As controller, Davis sits on 51 state boards and commissions, many of which are involved in financing that could potentially do business with Drexel. Two of the boards, the Public Employees Retirement System and the State Teachers’ Retirement System, together invest about $75 billion.

Another member of the state teachers’ fund, Supt. of Public Instruction Bill Honig, received $35,000 in campaign contributions from Drexel and its associates.

Many pension funds are beginning to move into higher risk investments such as junk bonds, leverage buyouts and real estate--all areas in which Drexel Burnham is heavily involved.

Drexel has also made friends in high places by contributing to various charity projects. At the 1987 Predators’ Ball, Bradley disclosed that Milken and his brother, Lowell, had made an anonymous contribution to an unspecified city program. A source close to the Milkens said recently that the donation was for $250,000 or more.

“The Milkens are truly representative of your great industry and reflect the kind of commitment and interest in those matters that deal with human capital,” Bradley said.

Bradley first appeared at the Predators’ Ball to speak on Milken’s behalf in 1985. The mayor was invited by Harry R. Horowitz, a childhood friend of Milken and one of his key aides in the junk bond department who organizes the conference each year.

Prominent Speakers

In 1986, the welcoming address was delivered by Sen. Alan Cranston (D-Calif.). Other prominent elected officials who spoke that year included Democratic Sen. Frank Lautenberg of New Jersey.

In more recent years, as Drexel and Milken ran into legal difficulties, fewer politicians have attended the annual ball, records show.

One California Democratic congressman, who declined to be identified, said he debated for many weeks whether to deliver a speech at the Predators’ Ball earlier this year. The congressman said he feared he might suffer politically by being identified with Drexel and Milken. He finally agreed to appear but declined the speaking fee. He nevertheless accepted free air fare to Los Angeles, a gift that California congressmen covet in order to stretch their travel expenses further.

Bradley has not been so hesitant to affiliate himself with Milken or Drexel. The mayor introduced Milken at last year’s Predators’ Ball. And the year before, the mayor’s five-minute welcoming address to the conference included plenty of praise for Milken.

“We haven’t had this kind of power and this kind of influence in this city since Abe Spiegel sat down with his friends from Israel,” the mayor said.

Bradley was referring to Abraham Spiegel, the chairman and founder of Columbia Savings in Beverly Hills and a prominent businessman and civic leader. Columbia’s assets have more than doubled since 1984 to $12.7 billion since its chief executive, Thomas B. Spiegel, Abraham’s son, came under the tutelage of Milken and began investing heavily in Drexel junk bonds.

Federal Scrutiny

Now the activities of Columbia and Thomas Spiegel are being scrutinized by federal investigators in connection with the Milken probe, according to regulatory papers filed by the thrift last month.

In addition to his friendship with Bradley, Tom Spiegel has developed a close relationship with Coelho, according to a politician who knows both men well. Coelho made an unusual $100,000 investment in 1986 in BCI Holdings Inc., a Drexel junk bond offering that was available only to institutional investors and regular Drexel customers. Coelho has denied that the purchase was recommended by Milken.

Bradley also invested in BCI Holdings preferred stock. The mayor’s personal financial holdings, which include stocks and bonds involved in the federal investigation of Drexel, are currently under review by federal authorities in Washington for any evidence of securities law violations, one SEC official said.

Bradley has received $53,130 in campaign contributions from the Spiegel family, Columbia and its employees since 1983. A longtime aide to the mayor, William Elkins, sits on Columbia’s board of directors. Also on the board is John H. Kissick, the Drexel official who replaced Milken as head of the junk bond operation when Milken was forced to take a leave of absence.

Columbia and the Spiegel family support many of the same politicians in Los Angeles, Sacramento and Washington as do Drexel and the Milkens, campaign records show. In all, Bradley has received at least $125,830 in campaign donations from the Drexel network since 1983.

Lucrative Connections

In recent years, Drexel Burnham has received lucrative municipal and junk bond business from city departments run by the mayor’s commissioners.

In May, 1985, Milken was invited to a meeting of the city’s Board of Pension Commissioners by Beverly Hills bond broker Bert Cohen, a Bradley appointee on the board until last year. The commissioners, who oversee the Fire and Police Pension System, were considering diversifying the system’s $3.2-billion portfolio by investing in junk bonds.

Milken, in what one pension department employee described as a “very low-key” sales pitch, encouraged the board to take the leap.

Within a month, the seven-member board--five of whom are appointed by Bradley--decided to hire two financial management firms to invest $35 million in junk bonds. Over the last four years, the two firms have executed $981 million of trades in high-yield bonds through Drexel. Gary Mattingly, who heads the pension department, said the management firms--not the department or its board--chose Drexel.

Neither of the city’s two other pension systems--the City Employees Retirement System and the Department of Water and Power Retirement System--invest in junk bunds, but all three use Drexel to trade stocks and bonds and make other investments. On a typical day, for example, the City Employees Retirement System directs to Drexel about $50 million of its $150 million in overnight investments, sources at the Retirement System said.

In Los Angeles County, Drexel and its network of supporters since 1983 have contributed to three supervisors--$23,161 to Deane Dana, $13,000 to Mike Antonovich and $10,450 to Pete Schabarum, records show.

Change in Policy

From 1984 through 1988, Drexel participated in underwriting $2.6 billion in municipal notes and bonds for the county. But the county no longer awards business to Drexel, said Sharon Yonashiro, the county’s public finance director.

“During the time that they were fried in the media and investigated by the feds, we felt that they’re not guilty until proven so. So we stuck with them and did not automatically take them out of our accounts. When the public admission of guilt was made, we decided not to pursue doing any more business with Drexel,” Yonashiro said.

Antonovich, like Bradley, purchased stock in 1986 in two companies--BCI Holdings Inc. and Coast Savings & Loan Assn.--both involved in major dealings with Drexel.

Moreover, Antonovich in 1986 purchased stock in Columbia and reported receiving a camera valued at $150 from Abraham Spiegel. That same year, Drexel paid Antonovich $2,000 in speaking fees and then air fare and hotel expenses for a trip to New York.

Drexel also has hired a cadre of consultants to lobby public officials in Washington and California, records show.

Last year, the investment firm paid $52,562 in fees to Rose & Kindel, a Los Angeles lobbying company whose partner, Maureen Kindel, is a longtime Bradley political adviser and chief fund-raiser.

In Washington, Drexel hired as many as five lobbyists at one time, including the powerful law firm of Akin, Gump, Strauss, Hauer & Feld. The firm, whose best-known partner is former chairman of the Democratic National Committee Robert Strauss, has received $431,058 to represent Drexel since late 1986, records show.

Aggressive Lobbying

In its heyday, Drexel’s lobbying on Capitol Hill was as aggressive as that of any big corporation, congressional sources said, and its top officers paid frequent visits to members of Congress.

One top Drexel executive pressed for a face-to-face meeting with Paul A. Volcker, then chairman of the Federal Reserve, in 1986 when the agency proposed prohibiting the use of shell companies to finance junk bond takeovers, recalled Michael Bradfield, the former general counsel for the Federal Reserve. Even though the staff did not permit the meeting, Bradfield said, tremendous pressure was applied by the Reagan Administration and Congress for a ruling that would be favorable to Drexel.

“It was an effective lobbying campaign,” said Bradfield, now in private practice in Washington. “We knew what buttons they were pushing. Certainly, you had the impression you were under siege.”

Eventually, the Federal Reserve applied regulations to securities issued by shell corporations, but the ruling had little impact on Drexel’s operations, Bradfield said.

Virtually every member of Congress who met with Drexel executives in those days says that the firm was not seeking any specific legislation. Instead, these contacts were designed primarily to educate members of Congress about the value of junk bonds.

Roy Greenaway, aide to Cranston, a ranking member of the Senate Banking Committee, recalls that Drexel Chief Executive Frederick H. Joseph came down from New York periodically to meet with Cranston. “His visits weren’t any more frequent than Salomon Bros.,” Greenaway says.

“The Drexel lobbying was mainly informational,” he said. “They never asked us to do anything. It was pretty much defensive. They did not defend the use of junk bonds for hostile takeovers.”

Dramatic Change

Drexel’s lobbying profile in Washington has changed dramatically since the firm’s junk bond operation became the subject of criminal and SEC investigations, several members of Congress said. They speculated that Drexel has assumed a lower profile for two reasons--to avoid calling attention to their legal problems and out of a fear that any lobbying efforts might backfire.

“You don’t see much of Drexel anymore,” said one Democratic member of the House Ways and Means Committee, who declined to be identified. “They are kind of walking around with their head in their collars.”

Also contributing to this story were Times staff writers Rich Connell, Douglas Frantz, Victor Merina, Dean Murphy, Joel Sappell, Bill Sing and researcher Cecilia Rasmussen in Los Angeles; Virginia Ellis and Noel Wilson in Sacramento; Scot J. Paltrow in New York and Sara Fritz, Josh Getlin, Robert L. Jackson, Oswald Johnston and Michael Shear in Washington.