Milken Called in Study of S&L;, Junk Bond Tie
Billionaire financier Michael Milken was subpoenaed today by the House Banking Committee as part of a new investigation of the role of junk bonds in savings and loan failures.
The committee, which conducted hearings last fall on the failure of Charles H. Keating Jr.’s Lincoln Savings & Loan Assn. of Irvine, voted 31 to 1 to subpoena Milken and two men involved in land deals with Lincoln, Ernest Garcia and Fernando Acosta.
Meanwhile, Deputy Treasury Secretary John E. Robson said a fresh look by thrift regulators at the financial condition of the S&L; industry may determine that President Bush’s bailout plan, which provides $50 billion over three years, is inadequate.
“We do not yet know whether (the $50-billion estimate) will prove accurate because of many variables that continue to exist. These include the pattern of interest rates, the performance of local real estate markets and the general condition of regional economies,” Robson said, adding, “It is possible that the $50 billion will prove inadequate.”
He said the Office of Thrift Supervision is updating its list of institutions likely to fail in the next 2 1/2 years, “which may indicate resolution costs beyond the original estimates.”
The committee is calling Milken as part of an examination of the junk bond trading of several institutions, including Lincoln, Silverado Banking, Savings & Loan Assn. of Denver and CenTrust Savings of Miami.
Federal regulators today ordered a suspension of CenTrust stock trading because of what they called misleading and inaccurate financial reports.
The appearance of Garcia and Acosta “would complete phase one of the committee’s investigation of . . . Lincoln” while Milken’s testimony would “signal phase two . . . (and) will concentrate on the extent to which trading in junk bonds and subordinated debt contributed to the collapse of Lincoln and other savings institutions,” said Rep. Henry B. Gonzalez (D-Tex.), chairman of the panel.
Milken asserted his constitutional right against self-incrimination when he appeared in 1988 before a subcommittee of the House Energy and Commerce Committee.
He since has been indicted on 98 counts of securities fraud related to deals he put together while head of the junk bond unit of Drexel Burnham Lambert Inc. His trial is expected to start later this year.
Earlier this month, Garcia refused to testify in U.S. District Court when summoned as a witness in Keating’s attempt to overturn the federal seizure of his thrift.
