Milken Wins Suit Dismissal
A federal judge in Manhattan on Wednesday threw out a lawsuit against Michael Milken that contended that the former junk bond dealer caused the collapse of Los Angeles-based First Capital Holdings, an insurance concern now in bankruptcy proceedings.
U.S. District Judge Morris E. Lasker ruled that the civil complaint filed earlier this year against Milken by First Capital shareholders failed to make specific allegations about how Milken caused First Capital’s losses.
Lasker, a highly regarded federal judge who sentenced inside trader Ivan F. Boesky to prison, ruled that the lawsuit made no specific claim that Milken was involved in preparing misleading information that went to First Capital shareholders.
Lasker also held that the suit “has not alleged sufficiently that Milken enjoyed any power whatsoever over First Capital’s actions.”
The ruling, along with at least two other recent decisions in suits against Milken, highlights the difficulty some plaintiffs are having in proving that the former Drexel Burnham Lambert official was responsible for the losses of firms that invested heavily in the junk bonds he sold. Some lawyers had believed that the First Capital case stood a good chance of prevailing because of close business links between Milken and the firm’s founder, Robert Weingarten.
Lawyers following the cases said the rulings may discourage suits against Milken by firms that were harmed simply by buying the junk bonds he purveyed.
But the lawyers said the rulings probably won’t have an effect on the three largest civil suits pending against him--filed by the Federal Deposit Insurance Corp., Columbia Savings & Loan and Drexel. Together, the lawsuits seek several billion dollars in damages.
Stuart D. Wechsler, a lawyer for the lead plaintiff in the case, said Lasker’s decision will probably be appealed. Lawyers for Milken at the New York firm Paul, Weiss, Rifkind, Wharton & Garrison declined to comment.
Milken is serving a 10-year sentence in a federal prison camp for criminal violations of securities laws. Lawyers say at least 30 civil lawsuits are pending against him, many by shareholders of firms that had substantial losses from junk bond investments.
As in many of the other suits, the First Capital one charged that Milken maintained a fraudulent junk bond “daisy chain” by having his client companies purchase each others’ junk bonds, thus temporarily maintaining artificially high prices.
First Capital was forced to file for bankruptcy protection in May after the California Insurance Department seized its main subsidiary, First Capital Life Insurance Co., because of heavy losses on junk bonds.
