Milken Figure to Settle Case for $7.9 Million : Securities: Money manager David A. Solomon provided key testimony about the former junk bond king.
A key figure in the prosecution of Michael Milken agreed Tuesday to pay $7.9 million to settle civil charges of insider trading, income tax fraud and other violations involving Milken.
Some of the charges against former California money manager David A. Solomon were central to the guilty plea of Milken, the once-powerful Drexel Burnham Lambert Inc. executive sentenced last week to 10 years in prison.
Solomon was granted immunity from prosecution in exchange for providing information against Milken. He settled Securities and Exchange Commission charges without admitting or denying guilt.
The 54-page civil complaint against Solomon alleged a pattern of fraudulent activity with Milken, including allegations Milken never was charged with and others his defense lawyers repeatedly denied.
Under the settlement, Solomon agreed to return $7.3 million in alleged illegal profits--$588,870 for insider trading and about $6.7 million for other violations. The money is to be placed into two funds to compensate wronged investors. Solomon also must pay $661,674 in civil insider-trading penalties.
The 46-year-old former head of Solomon Asset Management Inc. was one of Milken’s biggest buyers of risky and often lucrative high-yield bonds, and the two had a relationship dating to the early 1970s.
Solomon agreed to cooperate with prosecutors in October, 1989. His testimony gave the government information that elevated the case against Milken beyond limited charges leveled by convicted speculator Ivan F. Boesky.
The SEC alleged that Solomon investment advisory clients and Drexel investment banking clients were defrauded from at least 1983 through 1986.
The complaint alleges that Solomon personally gained from deals through confidential information supplied by Milken or other Drexel employees on transactions in which Drexel was involved.
Martin Auerbach, a lawyer for Solomon, said his client agreed to pay for an audit to determine what if any injury was done to clients. He said the settlement fund was “well in excess of the conceivable injury” to investors.
Through a spokesman, lawyers for Milken declined to comment.
Three of the six felony counts to which Milken pleaded guilty involved Solomon. But Milken did not admit to insider trading, and U.S. District Judge Kimba Wood ruled that prosecutors failed during a presentencing hearing for Milken to prove that he committed the violation.
The complaint alleges:
* Insider trading in the securities of Drexel clients Tiger International Inc., Lorimar Inc. and Republic Airlines Inc. The SEC alleged that Milken passed on information about pending deals to Solomon.
The Lorimar charge was included in the government’s presentencing memo on alleged crimes by Milken. The Tiger International and Republic charges were said to be part of an expanded indictment of Milken made moot by his decision to plead guilty.
* Prearranged transactions with Milken to create phony losses to help Solomon evade personal income taxes in 1983 and 1985. That charge was included in the Milken plea.
* Fraud in the 1984 sale of Charter Co. bonds owned by a Solomon client. The SEC claimed that Milken, via Drexel, agreed to purchase the bonds to help the client avoid losses. Solomon in return agreed to reimburse Drexel for $250,000 in losses through other transactions.
* A secret relationship in which Milken overcharged a junk bond fund managed by Solomon on certain transactions to compensate Drexel brokers who sold shares in the fund. Milken pleaded guilty to criminal mail fraud in connection with the Finsbury Fund.
* Fraud in a series of transactions by Solomon to pay back Drexel. The SEC said Solomon took certain concessions from securities transactions that belonged to investment advisory clients.