U.S. Subpoenas Data on Bradley Ties to Drexel

The U.S. attorney’s office in Manhattan has subpoenaed records of Mayor Tom Bradley’s financial transactions with the investment firm of Drexel Burnham Lambert Inc., The Times has learned.

The subpoena was confirmed by two independent sources who have knowledge of the U.S. attorney’s long-running investigation of the investment firm and its indicted “junk bond” king, Michael Milken.

One of the sources said the demand for Bradley’s records was part of a broader inquiry by prosecutors into Drexel’s relations with several politicians. The source said he did not know the identities of the other politicians.

The Securities and Exchange Commission is already reviewing public reports of Bradley’s investment portfolio. These records indicate that the mayor may have received favored treatment on at least one occasion in 1986, when he invested in Worlds of Wonder, a Fremont-based firm that was enjoying enormous success from its Teddy Ruxpin dolls and Lazer Tag game. The firm’s stock jumped 50% on the first day it was sold to the public in June, 1986.

Bradley reported in his financial disclosure statement that he bought and then sold up to $10,000 of Worlds of Wonder stock in April, 1986, two months before the initial public offering. If Bradley’s report is accurate, this means he would have traded the stock in special private transactions involving inside shareholders of the firm.

Another explanation is that Bradley’s report is inaccurate. A number of stockbrokers familiar with Worlds of Wonder speculated that it is more likely that Bradley was given the opportunity to buy the shares in the initial public offering. But some of these brokers said even this would not preclude the mayor receiving favorable treatment.

Preferential treatment is one of many questions that emerge from a detailed analysis of the mayor’s publicly reported investments over the past decade. That analysis shows that the reports contain numerous omissions, gaps and incomplete statements. The documents--filed by Bradley under penalty of perjury--were submitted by City Atty. James K. Hahn to the SEC as part of its probe and have contributed to the mayor’s political troubles.

Bradley, who last month won an unprecedented fifth term as the city’s mayor, faces several investigations. A probe by Hahn, which is expected to continue for months, centers on tens of thousands of dollars in fees that Bradley collected from Far East National Bank and Valley Federal Savings & Loan Assn., both of which had dealings with the city. The mayor also faces the inquiry by the SEC, which involves his Drexel investments, and an investigation by the Fair Political Practices Commission, which is looking into allegedly unlawful votes Bradley cast as chairman of the Los Angeles County Transportation Commission.

The U.S. attorney’s office does not appear to have any firm evidence that laws were violated in Drexel’s dealings with politicians, according to one source. But he said the prosecutors are taking a “broad-based” look into whether there may have been violations of the Hobbs Act, a federal law dealing with bribery of public officials.

One of the sources familiar with the investigation said prosecutors appear to be interested not only in Drexel’s dealings with the politicians through its high-yield “junk bond” business in Beverly Hills, but through the firm’s underwriting of municipal bonds as well.

Spokesmen for the U.S. attorney’s office in Manhattan, Drexel and Bradley declined to comment. A spokesman for the Justice Department in Washington asserted that officials could find no record of a subpoena specifically naming Bradley.

The value of the mayor’s investments in stocks, bonds and real estate partnerships ranges from $100,000 to more than $1 million, according to the broad categories reported in his financial disclosure statements.

The inconsistent reporting that appears on these statements is apparently the mayor’s own doing. He insists on filling out his forms without the help of his accountant, aides have said. And Bradley has refused thus far to provide specific dates and other details for many transactions in his investment portfolio.

Wants All the Data

“It is unfair to the mayor to respond when all the facts are not at your disposal, and we are not going to be in a situation of responding piecemeal to individual situations,” said Mark Fabiani, the mayor’s legal counsel. “We want a complete picture of the mayor’s transactions. At that point, the material will be reviewed by the mayor and his attorneys.”

On Wednesday, the state Fair Political Practices Commission said it has requested from Bradley’s attorneys “clarifying amendments” to his financial disclosure statements for the past four years.

Sandra Michioku, spokeswoman for the watchdog agency, said it requested the additional information after deficiencies in the forms were brought to the agency’s attention by The Times. She said Bradley’s attorneys “indicated that the amendments would be forthcoming.”

Bradley has said in recent interviews that he has disclosed all of the information legally required on his financial disclosure statements “each and every year.” He also has said that he was “not aware” that he had acquired any stocks or bonds that were not available to the average investor.

However, the mayor’s own disclosure statements are far from complete and they suggest that Bradley may have received special treatment.

A spokesman for Smith Barney, Harris Upham & Co., the lead underwriter of the Worlds of Wonder offering, called it “the hottest stock of the year.”

Due to the huge demand and almost guaranteed run-up in price immediately after the public offering, average investors were not likely to be given a piece of the action, according to other retail brokers familiar with the stock.

The stock was first sold in the offering for $18 a share, and in public trading shot up about $10 per share--an immediate huge profit for investors.

Bradley said in an interview last week that he held an account at Drexel, which received an allocation of about 100,000 shares of Worlds of Wonder in the offering. It is not known what brokerage firm Bradley used to purchase the toy company stock. Drexel has refused to comment on anything related to Bradley, citing its policy of confidentiality about client affairs.

Bradley also said he could not recall how he came to purchase Worlds of Wonder stock.

“I can’t even remember why I got into it,” he said. “I’ve only a thin recollection of that.”

One former Drexel broker noted that stocks in short supply tend to be steered to special clients. “You give it to accounts that do lots of business, to reward them . . . or as a political favor,” said the broker, who asked not to be named.

A New York-based stock analyst specializing in toy stocks agreed, saying that “good clients” received Worlds of Wonder stock. “Being a good client may not just be that I do a lot of business. Maybe I have numerous friends who are big accounts of the firm.”

But James Flynn, Dean Witter’s chief spokesman, said he believes that many ordinary retail investors did get a part of the offering. “I don’t think that special treatment was necessary,” Flynn said. “An ordinary investor could have done it.”

Bradley has reported that he acquired other securities not available to the general public.

In February, 1986, Bradley reported that he bought common stock in SCI Holdings Inc., a privately held company formed by Kohlberg Kravis Roberts & Co. to take over Storer Communications. Part of the financing for the deal was provided by Drexel junk bonds.

The mayor could have obtained common stock in SCI only if he were a member of Storer’s management, which he was not, or if he had an interest in a KKR partnership for institutional investors, which he does not report.

Wall Street sources familiar with the SCI transaction say it is more likely that Bradley obtained--and failed to accurately report--junk bonds that were issued through Drexel.

Bradley also failed for several years to disclose his interest in a Drexel real estate partnership--and then offered a vague and contradictory account of the investment.

Drexel and a network of employees and business associates close to Milken and the firm’s Beverly Hills office have been major contributors to the mayor’s political campaigns. The firm also has done business with the city as an underwriter for tens of millions of dollars worth of city bonds.

In recent years, Bradley has reported that his investment in the Drexel partnership is worth up to $100,000 and was first made in 1979. But the mayor did not reveal that interest until early 1986, when he corrected his disclosure forms dating back to 1982.

Issue in Campaign

Those amendments were filed as Bradley was gearing up for his second campaign for governor against George Deukmejian. Four years earlier, Deukmejian had made a campaign issue of Bradley’s refusal to publicly disclose details of his personal finances.

Initially, the mayor described his Drexel partnership interest as a “real estate investment.” More recently, he listed the investment with Drexel as “Real Estate Associates.”

Deputy Mayor Mike Gage has insisted that the mayor has no financial interest in Drexel and that the firm acted only as a broker in a real estate investment.

But Securities and Exchange Commission records show that a Drexel subsidiary is a general partner in a limited partnership called Drexel Burnham Lambert Real Estate Associates. The partnership was not formed until 1982, leaving questions about what investment Bradley had with Drexel since 1979.

Confusion also surrounds Bradley’s profitable purchase of Beatrice Cos. securities in April, 1986, the month before a celebrated takeover of the food conglomerate. The company was taken over by BCI Holdings Inc. in a leveraged buyout partly financed by Drexel and Milken’s junk bond department.

Assistant House Majority Leader Tony Coelho (D-Merced) has acknowledged making an unusual investment in BCI “junk bonds.” In an admission expected to attract the interest of the House Ethics Committee, Coelho said last week that the purchase was arranged and partially financed by Thomas Spiegel, president of Beverly Hills-based Columbia Savings & Loan.

Spiegel is a close business associate of Milken, and his father, Abraham Spiegel, is a longtime personal friend of Bradley. The mayor owns stock in Columbia Savings, has a loan of at least $10,000 from the firm and his longtime executive assistant, William Elkins, sits on Columbia Savings’ board of directors.

About the same time Coelho made his purchase, Bradley reported buying up to $100,000 of Beatrice preferred stock. The mayor then reported acquiring BCI “common stock” in August, which was available only to institutional investors involved in the takeover.

However, it appears that Bradley converted the stock into a handy profit of cash and BCI preferred stock five months later, according to SEC filings and Bradley’s own account of the transactions.

Bradley’s financial disclosure forms contain more examples of spotty reporting.

The mayor disclosed that he invested in TGX Corp. common stock in 1987 but failed to list the stock last year. It is not known whether Bradley still owns TGX stock.

Through 1985, Bradley listed an investment in Green Gold XI, an agricultural development partnership in Temecula. He failed to list the investment in 1986, but then disclosed that Green Gold produced income for him in 1987. The investment was not reported in last year’s filing, making it unclear whether the mayor still has an interest in the partnership.

The mayor also has failed to report the date or month when he purchased and sold many of his stocks. Earlier this month, Bradley said in an interview that he would attempt to furnish the specific dates of his stock transactions. Then last week he indicated that he may not have records that would provide the dates of some transactions.

Now Bradley’s aides and lawyers are trying to put together a complete picture of the mayor’s investment portfolio.

This story was reported and written by Times staff writers Scot J. Paltrow in New York and Glenn F. Bunting and Rich Connell in Los Angeles.

MAYOR BRADLEY’S PROBLEM INVESTMENTS

Worlds Of Wonder: Bradley reported trading in up to $10,000 worth of the toy company’s stock in April, 1986, two months before it was first available publicly. The stock was one of the hottest new securities that year.

Drexel Burnham Lambert Partnership: Bradley failed to disclose his 1979 investment of up to $100,000 in this real estate deal until 1986. Overall, his account of this investment has been vague and contradictory.

SCI Holdings Inc.: Bradley reported purchasing up to $100,000 worth of common stock in the firm that took over Storer Communications. That stock was only available to Storer management or partnerships of large institutional investors.

BCI Holdings Inc.: Bradley reported acquiring up to $100,000 worth of common stock in the firm formed to take over Beatrice Cos., the food conglomerate. That stock would only have been available to large institutional investors.

Source: Statements of Economic Interest submitted by Mayor Bradley