THE COURTS : High Court Refuses to Hear Milkens’ Appeal
The U.S. Supreme Court removed the main legal hurdle that delayed Drexel Burnham Lambert Inc.’s announced plan to settle a Securities and Exchange Commission lawsuit and plead guilty to separate criminal charges.
In a decision announced Monday, the court refused without comment to hear an appeal brought by Michael Milken, the former head of Drexel’s “junk bond” department; his brother Lowell, and Pamela Monzert, another Drexel employee. Lawyers for Milken and the others had claimed that Milton Pollack, the 82-year-old federal judge presiding over the SEC lawsuit, had a conflict of interest and should be removed from the case.
The Supreme Court’s refusal to hear the appeal lets stand a decision by a federal appeals court in New York that Pollack may remain on the case. Pollack had been prevented from approving the settlement while the Supreme Court decided whether to hear the case.
Judge Seems Short-Tempered
Although the appeal to the Supreme Court was considered a long shot, the justices’ refusal to consider the case is a blow to the Milken defense. The settlement covers only the firm itself; the Milkens and Monzert haven’t agreed to settle with the SEC and face a trial before Pollack. Defense lawyers are known to believe that the judge is prejudiced against them. In court, the judge at times has appeared gruff and even short-tempered with the defendants’ lawyers.
Ken Lerer, a personal spokesman for Michael Milken, said neither Milken nor his lawyers would comment on the Supreme Court decision. Michael Armstrong, a lawyer for Lowell Milken, said: “We took a position which we believed was the right position, and the Supreme Court has decided it’s not the kind of case it would like to consider. So we will go ahead and try the case.”
Steven Anreder, Drexel’s spokesman, said: “We’re pleased that we can now proceed to have our agreements implemented.” Ironically, until Drexel agreed to settle the suit, the firm had joined in the effort to remove Pollack from the case.
Pollack didn’t return a phone call to his chambers Monday.
The SEC and Drexel now are likely to move swiftly to make the settlement official, although additional legal skirmishing is expected on specific provisions. It’s expected that a hearing will be held in about two weeks.
Michael Milken’s lawyers may object to provisions of the settlement that ban him from ever working for the firm again and forbid Drexel from having any “direct or indirect” business dealings with him. It isn’t clear yet whether such a challenge could cause a significant new delay.
Strict Supervision
Thomas Newkirk, the SEC’s chief litigation counsel, said he was pleased that the settlement is closer to being implemented. He added, “We thought the attempt to recuse Judge Pollack was without merit.”
Terms of the SEC settlement, announced in April, will subject Drexel to the strictest outside supervision ever imposed on a major Wall Street firm. Drexel already has begun implementing some provisions of the settlement.
Both the SEC lawsuit and the criminal charges stemmed from the activities of Milken’s department and were based on allegations of insider trading, stock market manipulation, defrauding clients and illegally disguising the ownership of securities.
Under an accord with the U.S. Attorney’s Office in Manhattan, Drexel had agreed to plead guilty to six criminal charges and pay $650 million in penalties. But that agreement was contingent on Drexel finalizing a settlement with the SEC first.
John Carroll, an assistant U.S. attorney handling the Drexel criminal case, said hearings on Drexel’s planned guilty plea won’t begin until Pollack has given final approval to the SEC settlement. Milken and his brother, Lowell Milken, have also challenged provisions of Drexel’s agreement with federal prosecutors. The accord requires Drexel to fire Michael Milken, suspend Lowell Milken without pay pending the outcome of a trial, and withhold much of the compensation owed them for 1988. Michael Milken is owed a bonus for 1988 believed to total at least $200 million. Lowell Milken is said to be owed about $13 million.
Wife’s Holdings an Issue
Hearings on those issues will be held before U.S. District Judge Kimba M. Wood, who is in charge of the criminal case.
Carroll said prosecutors welcomed the Supreme Court decision. “We’re pleased that we can move forward with the criminal case,” he said.
Although fear that Pollack is prejudiced in favor of the government appears to have been a major motivating factor in Milken’s lawyers’ attempt to have him disqualified, the effort officially rested on a charge that the judge had a conflict of interest because his wife, Moselle, stands to receive about $30 million from the leveraged buyout of a department store chain for which Drexel helped raise the financing.
The U.S. Court of Appeals for the Second Circuit, in New York, had ruled in November that “Judge Pollack’s connection (to Drexel) is too remote” to constitute a conflict of interest.
