Milken Accused of Bribery, More Insider Trading

Michael Milken’s defense lawyers revealed Tuesday that the former junk bond wizard has been accused by prosecutors of committing many crimes beyond the six he pleaded guilty to, including previously undisclosed acts of bribing officials of mutual funds, obstruction of justice and insider trading.

The government allegations evidently were contained in a 200-page pre-sentencing memorandum supplied to U.S. District Judge Kimba M. Wood in New York. An edited version of that document had been scheduled to be made public Tuesday but was withheld at least until today because the judge was still reviewing it.

However, Milken’s lawyers released edited versions of their own pre-sentencing memorandum, as well as a detailed rebuttal of the still-confidential government document. These defense documents contain the first official details of the alleged additional crimes.

Milken, 44, former head of the Beverly Hills-based junk bond department of Drexel Burnham Lambert, is due to be sentenced Monday on the charges of conspiracy, securities fraud and mail fraud he pleaded guilty to in April. He faces a maximum of 28 years in prison.

Under his plea agreement, Milken cannot be prosecuted for any of the additional crimes the government now says he committed. Prosecutors, however, presented the judge with the new allegations in the hope that she will take them into account in deciding Milken’s sentence.

The prosecution document evidently includes new allegations that Milken and his associates obstructed justice by deliberately destroying documents and planning a cover-up in 1986, immediately after they became aware that former stock speculator Ivan F. Boesky had agreed to plead guilty to an insider trading-related offense and was cooperating with prosecutors.

Arthur L. Liman, Milken’s lead defense lawyer, asserted in the defense documents that these charges are false.

Liman also denied government allegations that Milken in effect bribed managers of mutual funds to buy securities of dubious value from Drexel for their funds, by allowing the managers to invest personally in highly lucrative deals. The government apparently asserted that such investment opportunities included participation in the acquisition of Storer Communications in December, 1985, by the leveraged buyout firm Kohlberg, Kravis Roberts & Co.

The new allegations that seemed to draw the greatest indignation from the Milken camp, however, were the insider trading allegations, including at least one instance in which Milken allegedly profited personally.

Milken resigned from Drexel in June, 1989, and the once powerful investment bank collapsed into bankruptcy proceedings in February, 1990.

Liman asked in his court papers that the judge ignore the new allegations. He said it is not the court’s role “to resolve scores of contested claims” that were dropped when Milken agreed to plead guilty to six counts. Although the indictment included some insider trading charges, it did not include allegations of obstruction of justice or bribing mutual fund officials. Liman provided a detailed, point-by-point rebuttal of the new government allegations.

And he asserted that the government document seemed intended to appeal unfairly to the public and pressure the court. “The document’s factual presentations are grossly distorted,” Liman stated.

The U.S. Attorney’s Office in Manhattan has said it will not comment at least until its memorandum is released.

The defense memo says Milken’s crimes were aberrations in an otherwise exemplary life. Liman wrote: “Although inexcusable, Michael’s offenses . . . were neither venal nor motivated by greed. He did not personally profit by them.”

Milken’s lawyers asked that he be sentenced only to probation and a community service project that would be supervised by the Los Angeles Police Department. Milken already has agreed to pay $600 million in penalties.

In a letter to Wood, Los Angeles Police Chief Daryl F. Gates, has recommended that because of Milken’s unusual talents society would best be served if he was allowed to run a program to benefit inner-city children.

However, the defense said the government has asked the judge to impose a substantial prison sentence, possibly a provisional sentence that could be reduced later if Milken cooperates fully with the government. Milken has agreed to do so after his sentencing.

On the prosecution allegations of insider trading, the defense documents reveal that prosecutors have asserted that Milken personally profited in 1983 from advance knowledge that Caesar’s World Inc. was about to carry out a major recapitalization. The government evidently has maintained that Milken’s profit-sharing retirement account acquired $3 million of Caesar’s World bonds based on knowledge that their value was about to soar.

Milken has long contended that his transgressions never included anything as serious as insider trading. And his lawyers took pains last spring to point out that the charges Milken pleaded guilty to do not include insider trading.

Some of the other insider trading allegations in the government’s memo were previously disclosed in the indictment of Milken that was withdrawn when he agreed to plead guilty. These include trading in the securities of entertainment companies Viacom Inc. and Lorimar. Others apparently had not been disclosed previously, including trades in securities of Republic Airlines and in dealings with Boesky.

In page after page of their own documents, the defense lawyers rebut the charges, providing detailed explanations of why the trading was not based on inside knowledge. They say the government’s own witnesses have testified before a grand jury that the trading was entirely normal and proper.

And Liman charged that the government’s documents “omitted almost all evidence exculpatory or favorable to Mr. Milken, including objective facts and even specific testimony by the government’s own cooperators . . . . “

It is by no means clear yet whether the judge will take any of the new government allegations into account when she imposes sentence. Prosecutors have asked the judge to hold hearings on the additional allegations to determine if there is sufficient evidence to back them up. If the judge decides to do that, it could delay sentencing for months. Milken’s lawyers oppose such a move, however. The judge is expected to rule on the issue before Monday.

In a similar case, involving Robert M. Freeman, a former stock speculator at the investment banking firm Goldman, Sachs & Co. who pleaded guilty to a single insider trading-related count, a judge refused to hold such hearings and said he ignored prosecutors’ allegations of additional crimes.