Former Top Drexel Trader Indicted in Securities Fraud

A former top trader in Drexel Burnham Lambert Inc.’s junk bond department in Beverly Hills was indicted Thursday by a New York federal grand jury on charges of conspiring with financier Michael Milken to commit securities fraud, embezzlement and other crimes.

Alan E. Rosenthal, 51, of Encino was accused in the 11-count indictment with helping Milken, the financial wizard who pioneered high-risk, high-yield junk bonds, to “confer unlawful economic benefits” on money manager David Solomon and take funds from Solomon’s clients.

“The charges are completely unjust and false,” said Rosenthal’s attorney, Steven Kimelman. “We’re going to vigorously defend the charges. This is another example of overreaching by the government in the Drexel investigation.”

The indictment is the first of an ex-Drexel trader since Milken was sentenced in November to 10 years in prison for illegal securities trading. The charges against Rosenthal are related to the six felony counts to which Milken pleaded guilty in April, 1990.

Solomon, who in the mid-1980s headed Solomon Asset Management Inc., agreed last November to pay $7.9 million to settle civil charges against him. He had been granted immunity from prosecution in exchange for providing information against Milken. Rosenthal and others, including Drexel’s chief junk bond trader Warren Trepp, had once been expected to be named in an expanded indictment in the Milken case. But the expanded indictment was never returned, and Trepp has not been indicted.

Long a loyal ally of Milken, Rosenthal eventually worked under him in Drexel’s Beverly Hills office as head of the convertible bond department. Milken hired him when Rosenthal was working in a men’s clothing store in New Jersey. Rosenthal’s salary eventually peaked at $3.8 million in 1987, according to court papers. Rosenthal’s home in Encino is around the corner from Milken’s.

Milken’s prosecution was by far the biggest securities fraud case in history and played a critical role in the downfall of Drexel itself. Once Wall Street’s fifth-largest investment banking company, Drexel has been under federal bankruptcy court protection for more than a year.

The indictment against Rosenthal alleged that he and Milken commited a variety of crimes involving Solomon’s junk bond management firm, which handled about $2 billion in assets and was allegedly one of Drexel’s biggest clients in the mid-1980s.

The indictment contended that in 1985 Rosenthal and Milken arranged short-term trading losses for Solomon of more than $1.6 million so that Solomon could reduce his tax liability. Milken then allegedly helped Solomon make up the losses the next year.

Rosenthal, Milken and others also allegedly agreed with Solomon to misappropriate “hundreds of thousands of dollars” from Solomon’s clients. They used a series of securities trades between Drexel and the clients, in which prices were “adjusted” to benefit Drexel, according to the indictment. The money then went to reimbursing expenses incurred by Drexel in connection with a junk bond mutual fund known as Finsbury Group Ltd., the indictment alleged.

Rosenthal was charged with conspiracy, two counts of securities fraud, five counts of mail fraud and one count each of aiding a false tax filing, offering an illegal pension fund gratuity and embezzlement from a pension fund.

The Associated Press contributed to this story.