$1.3-Billion Pact May Settle Suits Against Milken
The main parties in the scores of civil lawsuits against jailed junk-bond financier Michael Milken have reached a tentative agreement to settle all of the suits for a financial package worth at least $1.3 billion, sources close to the litigation said Sunday.
The mammoth settlement--which still must be approved by some of the many other parties in the litigation--would bring to a close a major chapter in the financial history of the 1980s. The decade saw the spectacular rise of junk-bond financing and then the fall of its leading proponents--along with many of the companies whose takeovers were financed with the high-yield, high-risk bonds.
Sources close to the settlement negotiations said the tentative agreement followed a marathon negotiating session that lasted until early Saturday morning in Houston, where U.S. District Judge Milton Pollack of New York, who has been pushing the settlement efforts, is on vacation.
Although the sources said a number of hurdles still must be overcome, the tentative pact is strong enough that notices of a possible settlement are being sent to the bankruptcy creditors of Drexel Burnham Lambert, Milken’s old firm.
“They wouldn’t have done that if it wasn’t close to a final agreement,” one source said.
One of the key cases that will be settled is Drexel’s suit against Milken for his misdeeds while he headed the firm’s junk-bond department in Beverly Hills.
Beyond that, the civil suits involve hundreds of individual plaintiffs, ranging from government agencies such as the Federal Deposit Insurance Corp. to individual companies and investors who claim they were harmed by Milken’s illegal activities. The claims total in the billions of dollars.
Drexel’s suit against Milken accuses him of bringing about the firm’s downfall through illegal manipulations of the junk-bond market. The FDIC suit accuses Milken of hoodwinking numerous savings and loans into investing in junk bonds that later caused huge losses and may have contributed to failure of the thrifts.
Milken is currently serving a 10-year federal prison sentence after pleading guilty to securities law violations.
If ultimately approved, the settlement would be the second major triumph in less than a year for the 85-year-old Pollack. The judge won strong praise from the legal community for taking charge of Drexel’s bankruptcy case and forcing a quick agreement among creditors. That pact is expected to allow a reorganization plan to go through next month.
The possible settlement involves other former senior Drexel officials who were sued along with Milken, including former top Milken aides Peter Ackerman, Warren Trepp and Leon Black.
Of the proposed $1.3-billion package, sources said $500 million is to be paid by Milken. Another $400 million will come from money he paid into a restitution fund administered by the federal Securities and Exchange Commission. The fund was established under the terms of Milken’s guilty plea in 1990 to six felony counts.
The remaining portion of the settlement package would be paid by the other defendants.
Although the principal parties are said to have agreed on the outlines of the settlement, sources cautioned that some plaintiffs in the huge array of suits have not yet agreed.
Ultimately, the settlement must be formally approved by Pollack, and possibly by judges in other federal jurisdictions where lawsuits against Milken are pending.
Pollack has linked the settlement attempt to Drexel’s bankruptcy case, and the settlement was crafted so that bankruptcy law can be invoked to prevent new suits against Milken from cropping up.
The main incentive for Milken and the other defendants to settle is the possibility of putting an end to the massive litigation pending against them. Legal experts have said, however, that it is not clear whether a blanket prohibition on new lawsuits would withstand legal challenges in appeals courts.
