U.S. May Indict 5 More Officials Tied to Drexel : Racketeering Charges Are Threatened in Hope of Getting New Testimony Against Milken, Others
Federal prosecutors in the racketeering case against former Drexel Burnham Lambert Inc. junk bond chief Michael Milken have threatened to indict five more current or former officials in the firm’s Beverly Hills office, sources said.
Prosecutors in the U.S. Attorney’s Office in Manhattan have threatened to bring racketeering charges against the five as part of a new indictment expected in the Milken case, the sources said. But they said prosecutors are hoping that the five instead will agree to cooperate with the government and testify against Milken and other defendants in the case.
In a separate development, it was also learned that the U.S. Attorney’s Office in Los Angeles for the first time has taken on part of the continuing investigation of employees and clients of Drexel’s junk bonds department. Prosecutors in Los Angeles have issued subpoenas to Guy O. Dove III, a former Drexel employee who for a time served as a money manager for a Bermuda-based holding company, Dove’s lawyer confirmed. The lawyer, Patrick Wall, denied that his client was involved in any wrongdoing and said he doesn’t know what specific allegations the prosecutors are looking at. But he said the subpoenas related to Dove’s dealings with Drexel while he was employed by the Bermuda concern, Clarendon Group.
The five current or former employees of Drexel’s Beverly Hills office who are threatened with indictment by a federal grand jury in New York include Warren Trepp, a Drexel official who sat directly next to Milken at the junk bond department’s trading desk; David Sydorick, a Drexel salesman believed to have some knowledge of the department’s dealings with former stock speculator Ivan F. Boesky; Roy Johnson, another executive in the department; Alan Rosenthal, a former Drexel employee, and Peter Gardiner, a former trader under Milken.
The sources said Sydorick had reached a tentative agreement with prosecutors for full immunity in exchange for his testimony, but the accord has been put in jeopardy because the Securities and Exchange Commission so far has been unwilling to agree to his lawyer’s demand that the agency promise not to take civil action against Sydorick. Sydorick’s lawyer, Alan B. Kaufman, declined to comment on discussions with the government but said:
“We were informed last December that his name had come up in the investigation. Our position with the government has been consistently that there has been no basis on which he should be charged with anything.”
Sydorick is believed to have knowledge of the junk bond department’s “parking” of Philips Petroleum common stock in 1985 on behalf of Boesky. The 98-count racketeering and securities fraud indictment of Milken returned in March includes allegations about the transactions. Parking involves sham sales of securities and illegally hiding their true ownership.
Lawyers Decline Comment
Prosecutors are thought to be especially eager to get Trepp to cooperate because they believe that his role as one of Milken’s principal assistants gave him detailed knowledge of some of the transactions under investigation. But Trepp so far has turned down an offer of complete immunity from criminal prosecution in exchange for his testimony, the sources said.
Lawyers for Rosenthal, Trepp and Gardiner already have met with Justice Department officials in Washington to try to talk them out of authorizing counts in the indictment under the federal Racketeer Influenced and Corrupt Organizations Act, or RICO, the sources said. Senior Justice Department officials must authorize any use of RICO in criminal cases.
It wasn’t clear what specific transactions any charges against Johnson might relate to. But he is said to have knowledge of Drexel’s dealings with Dove. Johnson failed to return a call to Drexel’s office Friday, and a lawyer at the firm said to be representing him refused to confirm or deny that Johnson is a client.
Steven Kimelman, Rosenthal’s lawyer, declined to make any comment on the investigation. Neither Rosenthal nor Gardiner could be located for comment on Friday.
A “superseding” indictment in the Milken case, naming additional defendants and containing new charges, had been expected by early next month. But sources said it is now unlikely before November. In addition to Milken, the current indictment names his brother, Lowell, and former Drexel trader Bruce L. Newberg. A trial in the case currently is scheduled for March.
Sources also said the new indictment may include obstruction of justice charges against several of the defendants. The sources said the charges would relate to the alleged shredding of documents. But additional details of such charges couldn’t be confirmed on Friday.
‘Unfairly Spread Rumor’
As reported, the new indictment may also contain charges related to the junk bond department’s handling of Storer Communications Inc. warrants when Storer was acquired by the leveraged buyout firm Kohlberg Kravis Roberts & Co. Sources have said the government suspects that Drexel funneled some of the valuable warrants to the personal accounts of managers of mutual funds as an inducement to get them to buy Storer bonds that otherwise were difficult to market.
Milken resigned from Drexel in June and has since founded his own company, International Capital Access Group. He has denied any wrongdoing. When asked for comment about the possible new charges and new defendants, Martin Flumenbaum, one of Milken’s lawyers, said in a written statement: “Stories such as these based on unnamed sources serve no purpose other than to unfairly spread rumor and innuendo. The continuing press leaks related to this case are designed to deny Mike Milken his right to a fair trial. Mike Milken has pleaded not guilty and will fight the charges in court, not in the newspapers.”
Drexel is due to plead guilty on Monday to six felony counts under an agreement with prosecutors reached last December. The agreement requires Drexel to pay $650 million in penalties and gives the firm broad immunity from further prosecution.
