Michael Milken, who once brought mighty corporations to their knees in ferocious junk bond-financed takeover battles, was reduced to sobbing uncontrollably Tuesday as he pleaded guilty to six felony counts.
Milken, 43, Drexel Burnham Lambert's former junk bond chief, admitted guilt to a range of criminal violations, including three charges that weren't in the original 98-count indictment brought against him over a year ago.
In a courtroom jammed with more than 200 spectators, journalists and family members, including his wife and mother, Milken stood tall throughout most of the 50-minute proceeding. Wearing a navy blue suit, white shirt and blue tie, he answered questions from U.S. District Judge Kimba M. Wood in a firm voice. He acknowledged that he will pay $600 million in penalties and may well go to prison.
But later, as he read aloud an 11-page document admitting specific wrongdoing, Milken choked up. When he reached the final paragraph, in which he was to apologize to his family and friends for the pain he had caused them, he began to sob and wasn't able to resume reading. Finally, the judge told him to sit down.
After years of maintaining that he was being persecuted by the government and unfairly accused, Milken told Judge Wood: "I transgressed certain of the laws and regulations that govern our industry. I was wrong in doing so and knew that at the time."
He was allowed to remain free on bail until he is sentenced Oct. 1. He faces a maximum of 28 years in prison. The government said it will ask for "substantial" prison time but won't specify how much. Most legal experts were betting that he won't get more than five years.
The guilty plea and simultaneous settlement of separate civil charges filed by the Securities and Exchange Commission prompted SEC Chairman Richard C. Breeden to claim victory in the biggest securities fraud investigation ever undertaken by the federal government. In a Washington press conference, Breeden said: "Mr. Milken has been portrayed as wrongly accused." But he added that "despite the efforts to mold public opinion, Mr. Milken's admissions today demonstrate that he stood at the center of a network of manipulation, fraud and deceit."
The $600 million in penalties will still leave Milken an extremely wealthy man. He is believed to be worth well over $1 billion. In one year, 1987, he had earned $550 million at Drexel.
Milken's guilty plea was the culmination of months of negotiations among his lawyers, federal prosecutors and the Securities and Exchange Commission. It wipes out all other criminal charges pending against him and enabled him to avoid a new indictment on a long list of additional charges.
The settlement prompted some public concern Tuesday from Rep. John D. Dingell (D.-Mich.), chairman of the House Committee on Energy and Commerce, and others that the settlement might prevent the public from ever finding out the true extent of Milken's alleged crimes.
But even though Milken will be exempt from further charges, prosecutors said Tuesday that they intend to reveal the extensive evidence they gathered of wide-ranging lawbreaking. John K. Carroll, the lead prosecutor in the case, said Milken's plea agreement specifically permits the government to spell out all the evidence in a memorandum that will be given to Judge Wood before sentencing. He said the memo will be filed publicly. "We expect to make a full report to the court of what we found," Carroll said.
One of the bigger surprises in the plea agreement, released for the first time Tuesday, is that it requires far broader cooperation by Milken in government investigations than expected. Sources in the Milken camp had indicated over the weekend that Milken would be required to give only limited cooperation and wouldn't be forced to implicate others. But the accord states that once Milken is sentenced, he must appear whenever summoned before grand juries and federal investigators and "fully and truthfully disclose all information with respect to Drexel-related activities."
He may also be called to testify against former colleagues and clients in criminal trials. Carroll noted in court that if Milken fails to tell the whole truth, he may face severe penalties, including perjury charges and contempt of court proceedings.
Still, as reported, Milken wasn't required to submit a "proffer," legally committing himself in advance to the specific facts and individuals he would testify about. Others who pleaded guilty in recent celebrated securities fraud cases, including former stock speculator Ivan F. Boesky, were required to sign proffers.
A Milken spokesman declined to comment Tuesday.
Federal investigators are known to be particularly interested in Milkens' dealings with several failed or troubled savings and loan associations, including the troubled Beverly Hills-based Columbia Savings & Loan. The thrift was one of Drexel's biggest buyers of junk bonds.
Alan M. Cohen, head of the U.S. Attorney's securities fraud unit in Manhattan, said the government's investigation will continue. But he refused to discuss targets or say when other indictments may be brought.
Milken composed himself quickly after the hearing. As he left the building, he walked past the horde of television cameras, journalists and spectators crowding courthouse steps, smiling broadly and with his arm around his wife, Lori. He said nothing.
There was an eruption of applause from a few supporters as Milken emerged from the courthouse. But it was nothing compared to a mass demonstration of support last year by Drexel employees, friends and relatives when Milken and his brother were arraigned on the original indictment.
The Milken plea was definitely the spectator draw of the day in Manhattan federal court: For the first time, the fraud trial of former Philippines first lady Imelda Marcos, taking place in another courtroom, was virtually deserted.
In a brief statement, Arthur L. Liman, Milken's lead defense lawyer, said Milken had accepted full responsibility for his offenses "and will not shove that responsibility off on others, now or in the future." He said the actual charges to which Milken pleaded guilty "are a far cry from the lurid, irresponsible and prejudicial accusations against Michael that have been made by anonymous sources to the press for the past 3 1/2 years."
Milken arguably was the most influential financier of the 1980s. His pioneering use of high-yield, high-risk bonds created a new source of capital for smaller companies. But he also helped turn junk bonds into a mechanism for raising huge amounts of instant cash to back corporate raiders. He thus helped make Drexel one of the most feared players in the 1980s takeover game.
As part of the plea agreement, all charges will be dropped against Milken's brother, Lowell, 41. Lowell, a former senior executive in the Drexel office in Beverly Hills run by his brother, also was in court. His lawyer, Michael Armstrong, claimed in an interview later that Lowell had spent several hours on the phone with his brother last week, attempting to persuade him not to plead guilty.
In a written statement, Lowell said: "This is one of the saddest and most frustrating days of my life," adding that the charges originally brought against him "never should have been brought." He said he remains proud of his brother.
The charges Michael Milken admitted to included conspiracy, mail fraud and aiding in the filing of a false tax return by a business associate. Milken's lawyers successfully negotiated so that he didn't have to admit racketeering or insider-trading charges. But prosecutors said the six charges to which Milken pleaded guilty provide a representative sample of the charges he would have faced in a trial.
The alleged conspiracy involved fraud to enrich Drexel and Milken and to help him clinch deals that otherwise might not have succeeded. Milken pleaded guilty to two charges never publicly disclosed before involving David B. Solomon, who headed a money management firm, Solomon Asset Management. Solomon currently is a government witness.
Specifically, Milken admitted he played a part in a scheme in which Solomon's customers were defrauded for the benefit of Milken's department. Bonds for Solomon's customers were deliberately sold by Drexel at above-market prices. Milken also admitted involvement in a securities scheme in 1985-86 that enabled Solomon to claim phony tax losses on his personal tax returns.
The rest of the charges related to Milken's long-publicized dealings with former stock speculator Boesky. Boesky's guilty plea in a mammoth insider trading scandal in 1986 led to the investigation of Drexel and Milken, based on grand jury testimony from Boesky.
The charges Milken pleaded to include using Boesky's company to help Golden Nugget covertly sell a big block of MCA shares in 1984 without the public finding out and without filing documents required by the SEC. One charge also relates to a deal with Boesky that hadn't been disclosed before: helping Boesky's company hide its ownership in 1985 of over 1 million shares of Helmerich & Payne Corp.
Before accepting the guilty plea, Judge Wood required Milken to read a document spelling out in some detail his criminal conduct. In it, although he admitted that he knowingly broke the law, Milken at times appeared to blame Boesky for leading him astray. Milken stated that he and Boesky "were not social friends, and had little in common." He said Boesky's "philosophy of business was different from mine."
In one instance, Milken said, he agreed to an illegal scheme to reimburse Boesky for losses after Boesky had "incessantly" made pestering phone calls to him demanding payment.
It wasn't clear what Milken will do once he completes his expected prison sentence. Liman and Milken's personal spokesman declined to comment. Both Milken and his brother, Lowell, were banned for life from the securities industry under the settlement with the SEC.
The $600 million that Milken is required to pay include $200 million in fines and $400 million that will go into a special fund to pay claims by individuals or companies that can prove they were harmed by his illegal activity. Drexel, which pleaded guilty to six charges in a separate settlement last year, set up a similar fund. Drexel has since ceased operations and is in bankruptcy proceedings.
Breeden noted that if successful civil claims against Milken should total more than $400 million, plaintiffs would be free to try to recover from other Milken assets. He also said the settlement had the advantage of enabling victims to get paid far faster than if Milken had held out for a trial. Civil lawsuits would have been automatically delayed until after a lengthy criminal trial and possible appeals were completed. That, most likely, would have been years from now.
Carroll said the settlement saved the government considerable resources that would have been spent in a long, complicated trial. Judge Wood questioned Carroll particularly closely about why the settlement was a good idea from the government's standpoint. In response, he claimed that the results were comparable to what the government could have hoped to achieve in a trial. He said the accord will provide adequate punishment, set up a fund that will allow victims of Milken's crimes to be swiftly compensated and "convince the public that justice has been done."
The judge, perhaps facetiously, asked Carroll if the $200 million in fines would cover all of the government's costs in investigating and prosecuting the case. "It does by a long shot," Carroll replied.
Staff writer Robert A. Rosenblatt in Washington contributed to this story.
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