THE MILKEN SENTENCING : Lowell’s Role Likely to Remain a Mystery

One brother’s prison sentence means that another brother will go free.

Michael Milken’s guilty plea to six felony counts last April was clinched when the government agreed to drop all charges against his brother, Lowell, and give him immunity from further prosecution.

Lowell, 41, watched along with other family members Wednesday as his brother was sentenced to 10 years in prison.

Lowell was a key aide to his older brother in Drexel Burnham Lambert’s junk bond headquarters in Beverly Hills. The fact that now he will never be tried on the criminal charges brought against him in a March, 1989, indictment leaves unanswered many questions about the government’s case against him.

The possibility of criminal wrongdoing now will never be tested. But witnesses in Michael Milken’s pre-sentencing hearings in October testified that Lowell was centrally involved in major decisions in the junk bond department and had at least some involvement in Drexel transactions that prosecutors alleged involved criminal wrongdoing. The testimony portrayed Lowell as playing a far more influential role in the department than the bit part long ascribed to him by his defense lawyer.

Some criminal law experts have written articles condemning Michael’s deal with the government, asserting that the government shouldn’t have given Lowell away as a bargaining chip if prosecutors really did have evidence that he broke the law. Alternatively, they said, if the purpose of indicting him was only to use him as leverage against his brother, then he never should have been charged.

Lowell’s lawyer, Michael Armstrong, continues to argue that Lowell “was a completely innocent hostage who was taken for the purpose of putting pressure on his brother.”

At least three witnesses in the pre-sentencing hearing, however, testified extensively about Lowell’s authority in the department and stated that the brothers frequently conferred on major transactions. Craig Cogut, a lawyer who worked for the Milkens and Drexel, testified that Lowell supervised the scores of private partnerships set up by the Milkens to benefit themselves and other Drexel employees.

Cogut said Lowell was also a “trouble shooter” who had direct contact with major Drexel clients when problems arose. And Cogut said that, when he was assigned to help structure securities that Drexel was issuing in the buyout of Storer Communications in 1985, he was supervised by Lowell.

The Storer deal--at the time the largest leveraged buyout ever--was one of the transactions in which prosecutors alleged criminal wrongdoing by Michael Milken. In the pre-sentencing hearings, they charged that Milken improperly and secretly kept extremely valuable Storer warrants for a partnership he controlled. They also charged that Milken used the warrants as de facto personal bribes to investment fund managers and corporate executives to reward them for having their companies buy other, much riskier Drexel securities.

Cogut also testified that Lowell at times appeared to give his brother directions. Cogut said he overheard a conversation between the brothers during the Storer deal on Drexel-underwritten preferred stock that was proving difficult to sell. “Lowell indicated that Michael had better get involved in selling the preferred stock or we would be (holding) a whole lot of preferred,” Cogut said.

Cogut strongly implied that Lowell had misled him on how the warrants were being used and claimed that Lowell had become “testy” when Cogut suggested that the distribution of the warrants should have been publicly disclosed.

Cogut and Lowell had both been attorneys at the Los Angeles law firm of Irell & Manella before joining Michael Milken at Drexel. Cogut testified that he had had extreme confidence in Lowell’s judgment and honesty. But when asked during the hearings if he still had the same level of trust, Cogut said: “Obviously, there have been a lot of events that have unfolded and it has been unfortunate, and I have questions, obviously.”

James Dahl, a former top Drexel bond salesman, testified that Lowell had directly contacted Thomas Spiegel--chief executive of one of Drexel’s top junk bond buyers, Beverly Hills-based Columbia Savings & Loan--about buying Storer securities. Spiegel is the target of a federal criminal investigation concerning, among other things, his involvement with Drexel. Evidence in the hearings suggested that Spiegel had directed Columbia to buy risky Storer preferred stock from Drexel at the same time that he was allowed to buy the valuable warrants.

Terren Peizer, another former junk bond department executive, testified that Michael had directed him to go to Lowell for an explanation of a secret list of transactions between Drexel and David Solomon of Solomon Asset Management. Milken’s dealings with Solomon, in which prices of securities sold to Solomon’s fund were inflated to the detriment of Solomon’s investors, was the basis for one count of Michael’s guilty plea.