MILKEN'S GUILTY PLEA : Milken Yielded as Prosecution Gained Momentum : Wall Street: The U.S. strengthened its case by gaining evidence from former lieutenants and clients.


Michael Milken's salesmanship was part of what made him the greatest financier of the age, and for nearly four years he's been pitching hard to convince the world of his innocence on federal securities charges.

"I am confident that in the end I will be vindicated," the junk bond evangelist of Drexel Burnham Lambert declared a little more than a year ago as he was indicted on 98 counts of securities violations.

But Friday the investment wizard agreed to pay fines of $600 million and plead guilty to six felony counts, according to people close to the case. It was a stunning culmination to the Wall Street corruption probe that in four years has humbled a long list of Wall Street notables, helped destroy Drexel Burnham Lambert, and wounded some of the investment world's proudest institutions.

Wall Street's most far-reaching investigation began haltingly, and sometimes seemed to falter, but gained enormous momentum by enlisting one accused wrongdoer after another to reveal damning evidence about one-time clients and allies. As time passed, more and more of them gave evidence against the most important target of the investigation, Michael Milken.

"That's the way law enforcement is supposed to work, but here it worked beyond what anybody expected," said Peter Romatowski, a Washington securities lawyer and former U.S. prosecutor. "You'd be a rich man today if you had bet in 1986 that this would bring men like Ivan Boesky, Boyd Jefferies, Robert Freeman and Michael Milken to their knees."

The resolution of the Milken case showed the strength of the prosecutors that had been evident in other cases since the probe's beginnings.

After he was indicted, many close to the case predicted that Milken would not yield to a settlement because of an intense desire to prove his innocence and his reluctance to cooperate with the government's investigation. But the government's advantages increased as time went on.

Although the prosecutors' case initially rested almost entirely on the testimony of a convicted felon--former stock speculator Ivan F. Boesky--since the fall of 1988 they have won cooperation from a number of Milken lieutenants, including a former head of Drexel's convertible bond department and one of Milken's top junk bond salesmen.

A guilty plea offered Milken the advantage of allowing him to know how large his financial penalty would be, rather than taking the risk of having to pay a larger penalty if he were found guilty. In a plea, the number of felony counts accepted would be known; this would give him at least some certainty over how much prison time he would have to serve.

In addition, a plea allowed him to avoid putting his fate in the hands of a jury, which might not by sympathetic to a once-powerful Wall Street figure who earned more than $550 million in a single year.

The government didn't have such a strong position when the insider-trading investigation got under way.

The shred of evidence that began the hunt was a single-page letter in broken English that arrived at the offices of the Merrill Lynch investment firm in May, 1985. The hunt pointed investigators to a Swiss Bank, and along a trail that ultimately led to Dennis B. Levine, a former Drexel investment banker.

Levine, who was then earning $1 million a year at age 32, pleaded guilty to four felony counts of insider trading, agreed to pay $11.6 million in penalties and fingered others. The most important of these was Boesky, who was perhaps Wall Street's most celebrated arbitrager, or professional speculator in takeover stocks. Boesky had used Levine's inside tips to make at least $50 million.

Boesky in turn agreed to cooperate with prosecutors, and even wore a "wire" to tape record conversations with others at some of Wall Street's biggest and most reputable institutions. In November, 1986, authorities announced that Boesky had agreed to plead guilty to a single felony count and to pay $100 million in fines and penalties.

Among those that Boesky turned in was Martin A. Siegel, a good-looking, smooth-talking star in Drexel's mergers department.

There was, too, Boyd L. Jefferies, the founder of Los Angeles' Jefferies & Co., an innovative securities firm that profited by selling stock when exchanges were closed and did frequent business with celebrated corporate raiders. Both Jefferies and Siegel pleaded guilty to crimes that involved Boesky and agreed to cooperate with the government.

Prosecutors' most serious blunder came in February, 1987, when the government arrested Richard B. Wigton, a Kidder, Peabody & Co. vice president; Timothy L. Tabor, a former Kidder vice president, and Robert M. Freeman, a partner at Goldman, Sachs & Co. The arrests, prompted by information from Siegel, expanded the investigation to two of Wall Street's blue chip firms.

In April, the three were indicted, but a month later the government abruptly dropped the indictments, saying it needed more time to prepare its case. No new charges were brought against Tabor or Wigton, although Freeman last year pleaded guilty to a single felony count.

Freeman was this week sentenced to four months in jail and ordered to pay $1 million. Even so, Rudolph W. Giuliani, the now-retired prosecutor who presided over much of the investigation, has acknowledged that the arrests of Tabor, Wigton and Freeman were a mistake.

In June, 1988, the government won a major insider trading settlement against a firm, when Kidder Peabody agreed to pay $25.3 million to settle securities-violation charges.

Prosecutors struggled with a case brought against chemical maker GAF Corp., its chairman and two subsidiaries, charging that GAF tried to manipulate the price of Union Carbide stock after an attempted takeover. One case ended in a mistrial and a second in a hung jury; on the third try, a jury last year convicted Vice Chairman James T. Sherwin and the company.

In August, 1988, the five officials of the specialty investment firm Princeton/Newport Partners and a former Drexel bond trader were indicted on 35 counts of racketeering, fraud and conspiracy. It was the first use of the government's potent Racketeering Influenced and Corrupt Organizations Act against a securities firm, and last year all were convicted.

The outline of the government's case against Milken began to come into view in September, 1988, when the Securities and Exchange Commission filed its civil suit against Drexel, Milken, investor Victor Posner and others. The action charged Drexel and Milken had a secret and illegal arrangement with Boesky, alleging at least 16 illegal series of transactions between early 1984 and 1986.

In December, Drexel agreed to plead guilty to six felonies and pay fines of $650 million. The agreement required Drexel to fire Milken and withhold his $200-million bonus for 1988.

Even worse for Milken, several of his lieutenants began to give evidence against him. In October, 1988, top junk bondsman James Dahl testified to a grand jury. And in December of that year, Cary Maultasch, a stock trader in Drexel's New York office, agreed to give evidence, thus reducing the government's reliance on Boesky's word.

Though Milken had one of the best legal teams available, the outlook worsened further as one by one other former allies agreed to cooperate. According to sources, the superseding indictment that prosecutors have been preparing since late last year included allegations from two former executives of Drexel's Beverly Hills junk bond operation and a former top Drexel client.

In all, at least one dozen people close to Milken were expected to provide evidence against him.

In recent months, negotiations between Milken and the government were begun, broken off, and resumed again. Milken's decision to take the plea was made at the last possible moment, for prosecutors had told a federal judge that they would seek to bring the broadened indictment on Friday if Milken didn't agree to go along by noon.

The pressures on both sides were enormous, and even Milken's lawyers were split in recent days on whether he should take the deal. He was under family pressure: If he took the plea, he might be able to talk prosecutors into dropping charges against his brother, Lowell, who had worked with him at Drexel.

A plea would eliminate the risks of a jury trial. While Milken might be able to convince jurors that he was the victim of overzealous prosecutors, such arguments haven't worked too well recently. In the New York area, juries have convicted defendants in almost every single securities fraud trial in the past two years.

But there were persuasive reasons for not settling. A settlement might have required him to provide information on the activities of his clients, friends and associates. In his 20 years on Wall Street, Milken has traded and underwritten securities for the most important players in the market, and some prosecutors believed that he could lead them to crimes committed by any number of Wall Street luminaries.

"Boesky will look like small beer compared to what some of them are hoping to get with Milken's help," said one person familiar with the government's thinking.

But Milken has let it be known that he would do anything to avoid having to testify against his former allies.

As head of Drexel's junk bond department, he built an enormously loyal following of employees and clients. It would be hard enough for Milken to get up in court and admit to crimes after years of denying them; he didn't want to be forced to help the government chase his friends as well.

And some legal experts contended Milken could have won in a trial, or at least gotten off with a lighter sentence than the one he would receive from a plea.

It is not yet completely clear what persuaded Milken to take a plea, but apparently the government made concessions on two key points in the final hours of talks. They backed off a demand that Lowell Milken agree to plead guilty to a misdemeanor charge, sources said.

And they may have eased up on their insistence that Milken help drive the investigation forward.

Shortly before the deal was disclosed, one of Milken's long-time allies at an industrial company said he would be shocked if Milken went for a settlement. "Michael looked me in the eye a while ago and told me he was going to fight this thing until the end," the associate said. "If he agrees now, that must mean there's absolutely no other way."


Milken will plead guilty to six felonies. The counts to which he will plead guilty were not specified. However, sources said none of the counts in the plea bargain relates to insider trading, and there is no racketeering charge.

He will pay $600 million in penalties. That sum would be split between criminal fines and a fund for payment of any civil lawsuits related to Milken's activities.

It was unclear whether the government would recommend a specific sentence to U.S. District Judge Kimba Wood. But the government is expected to recommend that any sentences on the six counts be served concurrently, for a maximum term of five years in prison.

Criminal charges will not be brought against him on any other matter.

The settlement will resolve civil charges filed by the Securities and Exchange Commission.

All charges against his brother Lowell will be dropped.

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