THE MILKEN SENTENCING : Stiff Prison Term Surprises Foes, Friends Alike
Friends, former associates and even critics of Michael Milken expressed surprise at the severity of the 10-year sentence given the fallen junk bond wizard on Wednesday, with friends calling it overly harsh and detractors praising it as a deterrent to future Wall Street crime.
Most said they expected U.S. District Judge Kimba M. Wood in New York to sentence Milken to about five years in prison for securities and tax law violations. About the only one who expressed no surprise was New York lawyer Rudolph W. Giuliani, the former U.S. Attorney in Manhattan who spearheaded the Milken probe that started more than four years ago.
“I had no question that the sentence would be in this range because I knew the case and knew the scope of it,” Giuliani said in a telephone interview.
Milken’s friends were unquestionably shocked. Typical was the reaction of Lou Ramirez, who taught American history to Milken at Birmingham High School in Van Nuys and who first met the 44-year-old Encino native when Milken was 12.
“Oh, my God! Ten years? It’s unjust. They are making him a scapegoat for everything. It makes me sick,” Ramirez said.
Friends and former customers of Milken’s Beverly Hills-based junk bond operation--including many who steadfastly believe that his crimes were technicalities and that he was pressured into pleading guilty by aggressive prosecutors--argued that his financial talents will be wasted in prison.
“A genius like Mike Milken and his brain can be of use,” said Lee Rich, who worked with Milken on financial deals while chairman of MGM/UA Communications Co. and as a co-founder of the Lorimar production company, now part of Time Warner.
Los Angeles lawyer and businessman Richard J. Riordan, a Milken friend and supporter, complained that the sentence is more than three times longer than that given Ivan F. Boesky, the admitted Wall Street stock swindler whose cooperation was critical in the Milken investigation.
“Boesky should have gotten 500 years if Mike got 10 years,” Riordan said. “What Boesky did is infinitely more evil than what Mike did.”
But law enforcement authorities had a different view, praising the sentence as well deserved for Milken, who previously agreed to pay $600 million in restitution and fines when he pleaded guilty in April.
Atty. Gen. Dick Thornburgh said in a statement that Wood “crafted a sentence that is both fair and appropriate to the circumstances,” adding that authorities have now “upped the ante” for white-collar crime.
“The balance sheet now reflects not only $600 million in penalties, for which Milken is personally responsible, but a bottom line of 10 years behind the bars of a federal prison as well,” Thornburgh said.
Securities and Exchange Commission Chairman Richard C. Breeden in a statement called Milken’s sentence “entirely justified,” in part because Milken’s crimes created risk for the U.S. financial markets and for financial institutions.
“Any market in which manipulation replaced the forces of supply and demand would be inherently unstable. The manipulative schemes Milken conducted created substantial distortion and damaged the integrity of the U.S. markets,” Breeden said.
Giuliani said Milken’s crimes were clearly more extensive than those committed by Boesky and Dennis B. Levine, the former investment banker whose guilty plea in 1986 led to the uncovering of Wall Street’s biggest insider trading scandal. Giuliani also rejected criticism that Milken, who earned more than $1 billion through his activities as junk bond chief at now-defunct Drexel Burnham Lambert, caved in to pressure.
“Powerful people with resources do not get badgered into pleading guilty,” Giuliani said.
Giuliani, who was harshly criticized for trying to gain guilty pleas in his Wall Street investigations using powerful federal racketeering statutes, added that the government has been vindicated by the guilty pleas of Drexel and Milken, and now by Judge Wood’s sentence.
“It underscores the seriousness of the government’s case, which people had put into question. The pressures in this case were enormous, the public relations pressure and all other kinds,” Giuliani said.
Los Angeles Police Chief Daryl F. Gates had little reaction. His chief spokesman, Cmdr. William Booth, said the police chief does not want to second guess Wood’s sentence. Gates had written a letter to Wood praising Milken and suggesting that he work with inner-city youths should she decide public service or a work furlough program was appropriate in lieu of prison.
Alan Bromberg, a securities law professor at Southern Methodist University’s law school, said the sentence was “very stiff, though I can’t say too stiff.” Bromberg said that if he had been the judge he “might have come up with a smaller number,” though he added that he would not fault the judge’s decision.
He said the judge may have decided on a long sentence in part because of its deterrent value. “This is a very high-profile guy, and a harsh sentence definitely sends a message,” he said.
Charles F. Sarkis, a longtime Milken ally and chief executive of Westwood Group Inc., called the sentence “outrageous.”
“Child molesters, rapists and murderers are getting less time than that,” said Sarkis, whose Boston-area restaurant and race-track firm Milken aided with junk bond financing. “The sentence was for everything the government was able to prove, and for all the counts they failed to prove, too.”
John C. Coffee of the Columbia University law school said no one he knows had predicted such a long sentence, particularly in light of the government’s weak case at the recent presentencing hearings.
“I predicted five years, and everybody told me I was crazy,” he said.
He offered two theories for the long sentence. The judge may have felt Milken’s abuses deserved stiff punishment because he held such an important position--a position of trust--at the center of the financial world.
“There’s a long tradition here of viewing very seriously abuses by people with high responsibilities, and this man was at the crossroads of capitalism,” Coffee said.
Second, he said, Wood might have imposed the sentence to induce Milken’s cooperation, which might help him win a reduced sentence or earlier parole. “She didn’t need to go out of her way to say that cooperation would help Milken, because that was generally understood. But she did, and she seemed to be sending a clear signal.”
Coffee said that such pressure, however, raises an ethical question of whether it might induce Milken to produce damning testimony against innocent persons. “It’s a troubling question,” he said.
Coffee added that he thought Milken’s lawyers have “no chance” of winning a sentence reduction on appeal.
James Bates reported from Los Angeles. Paul Richter reported from New York.
THE WAGES OF WALL STREET SIN Michael Milken is the latest in a series of financial high-flyers of the 1980s to face a jail term for playing fast and loose with the securities laws. Here is a summary of crimes and punishments of major figures in the Wall Street scandals of recent years. NAME: Michael Milken ROLE: Head of high-yield bond division at Drexel Burnham Lambert; considered the premiere financier of his time ACCUSATIONS; PLEA: Originally indicted on 98 counts of racketeering and fraud; pleaded guilty April 24, 1990, to six counts of violating securities laws, including conspiracy, mail fraud and assisting the filing of a false tax return. PENALTY: Ten years in prison, plus three years probation, during which he must do 1,800 hours of community service annually. Has agreed to pay $600 million in fines, penalties and restitution. NAME: Ivan F. Boesky ROLE: Speculator in takeover stocks ACCUSATIONS; PLEA: Pleaded guilty in November, 1986, to one count of lying to federal regulators; agreed to cooperate. PENALTY: Three years in prison (released after two); paid $100 million in fines, penalties and restitution. NAME: Dennis B. Levine ROLE: A managing director of Drexel ACCUSATIONS; PLEA: Accused of supplying inside information to speculators; pleaded guilty to four felony counts including tax evasion and perjury. PENALTY: Two years in prison (released after 17 months); paid back $11.6 million in illegal profits. NAME: Drexel Burnham Lambert & Co. ROLE: Investment banking and brokerage firm that popularized hihg-yield “junk bond” financing. ACCUSATIONS; PLEA: Accused of illegal insider trading, stock manipulation and fraud. Pleaded gilty to six felony counts; separate settlement of SEC civil suit. PENALTY: Agreed to pay $650 million in fines and restitution in criminal case; accepted three years of federal monitoring in civil case. Parent company has since filed for bankruptcy protection. NAME: Martin A. Siegel ROLE: Head of merger unit at Kidder, Peabody ACCUSATIONS; PLEA: Pleaded guilty in 1987 to illegal trading and tax evasion while at Kidder. PENALTY: Two months in prison; returned $9 million in illegally obtained cash and securities. NAME: Boyd L. Jefferies ROLE: Los Angeles stockbroker linked to Boesky ACCUSATIONS; PLEA: Pleaded guilty to two felony counts in 1987; testified at several trials. PENALTY: $250,000 fine and probation. NAME: Paul A. Bilzerian ROLE: Investor; former Singer Co. chairman ACCUSATIONS; PLEA: Convicted on nine counts of securities fraud, conspiracy and making false statements. PENALTY: Four years in prison and $1.5 million in fines; free pending an appeal. NAME: Robert M. Freeman ROLE: Head of arbitrage for Goldman, Sachs ACCUSATIONS; PLEA: Accused of illegal insider trading; Pleaded guilty to one felony count. PENALTY: Four months in prison and $1 million fine. NAME: Bruce L. Newberg ROLE: Trader; Milken’s assistant at Drexel ACCUSATIONS; PLEA: Convicted of racketeering and fraud in Princeton-Newport case. Indicted with Milken, case not yet resolved. PENALTY: Three months in prision in Princeton-Newport case. NAME: John A. Mulheren Jr. ROLE: Stock speculator linked to Boesky ACCUSATIONS; PLEA: Convicted of conspiracy and securities fraud PENALTY: One year and one day in prison and $1.86 million fine. * MILKEN SENTENCED The junk bond king was sentenced to 10 years in prison. Stories, A1