U.S. Witnesses Fail to Link Milken to Wickes Scam

Prosecutors’ hopes to implicate Michael Milken in the illegal manipulation of Wickes Cos. stock seemed to go up in smoke Monday after none of the government’s three witnesses directly linked him to a crucial purchase of 1.9 million Wickes shares on April 23, 1986.

Prosecution witness Peter R. Gardiner, a former convertible securities trader at Drexel Burnham Lambert who admitted that he has frequently lied under oath, said Monday he believes that Milken was behind the manipulation. And he said Milken had urged traders that day to take improper steps to get the stock price up.

But Gardiner, who in 1986 sat near Milken on the firm’s big X-shaped trading desk in Beverly Hills, said he didn’t remember Milken ordering the massive purchase that actually raised the stock’s price.

The key transactions occurred when a Drexel trader in New York, Cary J. Maultasch, asked another brokerage firm to buy 1.9 million Wickes shares. Maultasch instructed a firm headed by former financier Ivan F. Boesky to make the secret purchase for Drexel. The purchases were made just before the end of the trading day and boosted the stock’s closing price.

The testimony came in the second day of hearings in New York to help U.S. District Judge Kimba M. Wood decide Milken’s sentence on the six felony counts he pleaded guilty to in April. The Wickes manipulation is the first of three illegal transactions that prosecutors are attempting to prove Milken orchestrated. Prosecutors hope to persuade the judge to impose a stiff prison sentence by proving that Milken committed additional crimes. He faces a maximum sentence of 28 years.

But after the government finished with its last witness on the Wickes transaction, the judge said she found the evidence “fairly ambiguous.”

Gardiner said Wickes stock had been placed on Drexel’s “restricted” list because Drexel was representing the company in a possible acquisition. The restricted list was intended to prevent improper trading that might result from Drexel’s dual role as adviser to the company and trader of its securities. Under Drexel’s rules, traders were forbidden to solicit bids from customers for the securities of companies that were on the restricted list.

Gardiner said, however, that Milken told salesmen several times that day that “we’re looking for unsolicited buyers of Wickes common.” He said this was an obvious contradiction in terms, and a violation of rules, because “it effectively asked the department to solicit unsolicited orders.”

The witness said Milken also urged him personally to get the stock’s closing price up. Referring to the computer screens which showed changes in stock and bond prices, Gardiner said: “He was looking at his machine. He directed me to look at my machine and said ‘Peter, Wickes at six and an eighth.” Gardiner said he understood this to mean that Milken wanted the stock to close at 6 1/8, or $6.125 per share, which it ultimately did.

Gardiner said he had attempted to find buyers of Wickes stock from among his own regular customers but failed.

Gardiner testified, however, that he didn’t recall Milken saying or doing anything that led to the purchase of the 1.9 million shares. Gardiner put prosecutors in an awkward position by directly contradicting one of their other witnesses. He denied phoning Maultasch in Drexel’s New York office with instructions to order Boesky’s company to buy the huge blocks of shares. Last Thursday, Maultasch had said it was Gardiner, based in Drexel’s Beverly Hills junk bond headquarters, who had directed him to place the order.

Gardiner testified Monday that “I don’t recall calling Cary to place the orders with Boesky, period.”

The government contends that Milken wanted to manipulate Wickes stock upward to enable Wickes to redeem a series of preferred stock that paid a heavy dividend. The preferred stock carried a provision that allowed the company to exchange it for a fixed number of common shares if the common had traded above $6 for 20 out of 30 consecutive trading days. The April 23, 1986, manipulation enabled Wickes to make the exchange.

Gardiner’s testimony, however, leaves the government with no direct evidence that Milken was behind the purchase. Boesky’s chief trader testified that only Maultasch had called him with instructions to buy the stock. Maultasch himself said he didn’t have any basis to believe that Milken had ordered the purchase. And Gardiner contradicted Maultasch and said he had no knowledge of who told Maultasch to buy the stock. The government has decided not to call Boesky himself to testify.

Prosecutors also didn’t call any witnesses to corroborate Gardiner’s claim that Milken had shouted instructions to everyone on the Beverly Hills trading desk to seek improper bids for Wickes stock.

Gardiner admitted that he had lied to a grand jury investigating the case and had lied on dozens of other occasions before the government gave him immunity from prosecution a week ago.

Gardiner also testified that Alan Rosenthal, then the head of the convertible securities department at Drexel, ordered him in late 1986 to clear out his desk and remove “anything that isn’t nailed down.” He said the order came just after Milken had learned that Boesky was cooperating with the government. Gardiner said Rosenthal told him that he had “talked with Mike” before ordering the clean-out. Gardiner said he took all of his papers home and burned them in his fireplace.

But he said he never heard Milken himself give such an order. And another former Drexel trader, Patsy Van Utt, said she had no knowledge of Milken giving orders to destroy documents.