U.S. Probe to Re-Examine Milken Sales Strategy : Handling of Storer Communications Case Is Targeted in Expanded Inquiry
The federal investigation of former Drexel Burnham Lambert Inc. junk bond chief Michael Milken has broadened to focus on whether his department in effect bribed the managers of mutual funds and other customers to buy difficult-to-sell securities from Drexel.
Sources close to the investigation confirmed that both the Securities and Exchange Commission and the U.S. Attorney’s Office in Manhattan are investigating the sales strategy employed by the high-yield, or junk bond, department in Beverly Hills to sell securities, especially those of Storer Communications Inc.
Among other issues, federal investigators are said to be looking into whether a Milken-controlled partnership, MacPherson Partners, was used as a conduit for allowing managers of several funds to profit personally from highly valuable warrants in exchange for having their funds purchase less desirable securities.
A portfolio manager at one firm that manages more than $2 billion in junk bonds, First Investors Management Co., reportedly took a leave of absence beginning in May after investigators began looking into MacPherson. Andrew Donohue, First Investors’ general counsel, failed to return two telephone calls to his office Thursday.
Leaks Charged
Storer Communications was the subject of a leveraged buyout by Kohlberg Kravis Roberts & Co. in 1985. The pending 98-count indictment of Milken contains allegations relating to Storer, including charges that, at Milken’s direction, his department bought and sold Storer stock based on insider information. Milken has denied the charges.
The broadened inquiry into Drexel’s handling of Storer securities was first disclosed by the Wall Street Journal on Thursday. Sources close to the defense in the Milken case charged that prosecutors are leaking new aspects of their investigation in an effort to pressure potential witnesses to cooperate with the government in advance of an expected new indictment in the case. The superseding indictment of Milken; his brother, Lowell, and former Drexel trader Bruce L. Newberg is expected to name additional defendants and contain new charges.
Jess Fardella, an assistant U.S. attorney in the Drexel case, strongly denied that prosecutors had leaked information. “There are no leaks coming from anybody connected with this office’s investigation, and I’m quite confident of that,” Fardella said.
A Milken spokesman said Thursday that “any allegations of wrongdoing on Milken’s part are completely untrue, and the leaks (about the case) over the last 2 1/2 years threaten Michael Milken’s ability to get a fair trial.”
‘Allegations Not Known’
No new charges could be brought against Drexel itself since the firm was granted broad immunity from further prosecution after it agreed in December to plead guilty to six felony counts and pay $650 million in penalties.
Steven Anreder, Drexel’s spokesman, said the firm wouldn’t comment on any details of a pending investigation. But in a prepared statement he said: “These allegations certainly were not known to us at the time and would have raised serious questions in the absence of mitigating circumstances. In any event, we find leaks like this of ongoing investigations to be irresponsible and unfair.”
