Milken Phoned Trades to Top Boesky Trader, Memo by SEC Alleges

WASHINGTON — The senior trader who worked for stock speculator Ivan F. Boesky often executed trades based on instructions he received directly from Drexel Burnham Lambert financier Michael Milken, according to a confidential Securities and Exchange Commission memorandum prepared in May, 1988.

Milken has been charged with civil and criminal violations related to an alleged stock trading arrangement with Boesky that involved insider trading, stock price manipulation, rigging corporate takeovers and other violations. He has asserted his innocence and vowed to fight the charges at trial.

According to the SEC memo, Michael Davidoff, who was Boesky’s senior trader, bought and sold securities in Boesky’s account after talking by phone with Milken. The purpose of the transactions, the memo said, was to reward Boesky for trading favors he had done for Drexel and Milken. While Milken has asserted his Fifth Amendment right against self-incrimination and declined to testify, Boesky and Davidoff, both of whom have pleaded guilty to criminal charges, are cooperating with the government in its prosecution of Milken.

The SEC’s account of the Milken-Davidoff conversations indicates that the government has witnesses other than Boesky who could testify that they had direct dealings with Milken as part of the alleged arrangement.

“In the first half of 1985, Milken arranged a number of payment trades,” the memo said. “Usually . . . Boesky informed Davidoff that Milken would be calling Davidoff, that (the Boesky organization) would be buying securities from Drexel, and that Davidoff should follow Milken’s instructions.”

Milken would contact Davidoff periodically, the memo continued, and instruct him to buy a certain amount of a security at a specific price. A few days or weeks later, Milken would contact Davidoff and inform him that Drexel would repurchase the security at a higher price to give Boesky a profit.

Prices Said to Differ

“Some of these trades were done at prices significantly different from market prices but many were at or near prevailing market prices,” the memo said.

Milken, regarded as the pioneer of high-yield, high-risk junk bonds, was head of Drexel’s junk bond department in Beverly Hills before he left the firm earlier this year. While Milken is fighting the government, Drexel agreed to pay $650 million and plead guilty to six criminal felony counts.

The 1988 memo was prepared by the SEC’s enforcement division and submitted to the agency’s commissioners in support of a recommendation that charges be filed against Drexel, Milken and others; the SEC commissioners voted unanimously to file the charges.

The memo also said the agency was advised by an attorney representing Beverly Hills-based Columbia Savings & Loan Assn., a major Drexel client, that some documents the S&L; turned over in response to a subpoena may have been “altered.”

In addition, the memo said the SEC was investigating suspicious trading by other Drexel clients--including Saul P. Steinberg, Executive Life Insurance Co. of Los Angeles and Bass Investment Limited Partnership--that it suspected had improper trading arrangements with Drexel that were similar to the alleged Boesky-Milken arrangement. None of these clients has been charged.