Pact Will Allow Milken to Keep $125 Million : Litigation: Imprisoned financier’s family to retain up to $400 million in proposed settlement of 150 suits.
Imprisoned financier Michael Milken will retain a personal fortune of at least $125 million under the proposed settlement of more than 150 securities and other civil lawsuits filed over the collapse of Drexel Burnham Lambert Inc., Drexel attorneys said Thursday.
The sum does not include an estimated $300 million to $400 million that Milken’s wife, children and brother will be permitted to keep, ensuring that the Milkens retain their status as one of the nation’s wealthiest families.
Many observers of the financial scene were astounded that the man who has shouldered much of the blame for the rigged markets and speculative excesses of the 1980s--and the resulting financial hangover in the 1990s--will emerge with a family fortune of perhaps half a billion dollars.
“It’s the kind of thing that leaves you shaking your head,” said Richard C. Leone, executive director of the 20th Century Fund, a public policy group, and a former managing director of the New York investment bank Dillon, Read & Co.
“We’re supposed to severely punish people who do well for themselves by doing evil to others,” he said. “That’s part of the social contract.”
Others took a more tolerant approach to the settlement of litigation that some legal experts say might otherwise have dragged into the next century.
“The moral algebra is very difficult,” said financial historian and author Ron Chernow. “Do you assume that every dollar the Milkens amassed was ill-gotten? How do you assess the value of a 10-year prison sentence?”
Milken popularized the use of high-risk, high-yield securities when he headed the junk bond department at Drexel. In 1990, he pleaded guilty to six felonies and was sentenced to 10 years in prison. Drexel, which made a fortune masterminding corporate takeovers, filed for bankruptcy in February, 1990, in the largest collapse ever of a Wall Street firm.
Milken is expected to serve only 40 months at Federal Prison Camp at Pleasanton in California, a minimum-security facility, for his securities law violations. He is expected to sell off some personal junk bond holdings to pay the settlement, which will be made in four installments stretching into 1995.
Under terms of the settlement, Milken must pay out $500 million, or 80% of his current personal net worth of $625 million, into the $1.3-billion settlement fund. Milken has also already contributed $400 million into a Securities and Exchange Commission-administered settlement fund and has paid penalties of $200 million to the U.S. Treasury.
“On one hand, Milken is paying a severe emotional and professional penalty. On the other, it is frustrating to know that he is being left with a king’s ransom,” Chernow added.
The moral equation is complicated by Milken’s pre-incarceration lifestyle, which was relatively modest--at least when compared to such other 1980s rogues as stock speculator Ivan F. Boesky. “For Milken, the ultimate high was going to work every day--not going home and spending the loot,” the historian said.
“I think it’s a very fair settlement--and I’m not easy,” added U.S. District Judge Milton Pollack, the 85-year-old jurist who is credited with the extraordinary achievement of driving the parties to settle.
“You also have to remember that none of these claims have been tried,” Pollack added. Had the cases gone forward, the outcome could have been different, with Milken either prevailing or paying more.
The settlement still must be approved by Pollack in a court hearing, during which objections can be raised by Drexel creditors and other litigants.
Under terms of the proposal, if Milken hid any assets from the court that were subsequently uncovered, those assets would be forfeited to the settlement fund. Milken would also be subject to prosecution for perjury.
The arduous settlement negotiations “lasted until everyone was satisfied there was no more give and no more get,” said Ira Millstein, senior partner at the law firm Weil, Gotschal & Manges, which represented Drexel.
Ken Lerer, a spokesman for Milken, declined comment on the settlement or its terms, citing a gag order issued by Pollack. “We’ve been instructed by the court not to comment on anything at all,” Lerer said.
Other members of the financial community were not so reticent.
“Where is the justice?” asked Henry Kaufman, the respected former chief economist of Salomon Bros., who noted that the Milken family fortune remains “mind-boggling.”
“The justice,” Kaufman continued, “is in the judgment of history. . . . He may try to use his fortune to write a revisionist history. (But) no matter what happens, Michael Milken will never recapture his reputation--and that is something he and his children will have to live with forever.”
“Michael is coming up on his first anniversary in jail,” a lawyer who sparred with Milken added. “I’ll bet he’d give up every last dollar if he could get out now. . . . How many people would trade $125 million for missing out on the last years of their children’s childhood, or the last years of their parents’ lives?”
One person who knows Milken well said he settled the lawsuits in an attempt to put the Drexel affair behind him, once and for all. Still, said historian Chernow, “it’s hard to imagine what the second act in the life of Michael Milken will be.”
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Tracking Milken’s Millions
Even after paying his debt to society through a prison sentence and $1.1 billion in fines and payments to settle more than 150 lawsuits filed against him, Michael Milken will still be a wealthy man.
$1.225 billion: Milken’s personal net worth before conviction. However, the value of these assests fluctuates with the stock market.
$200 million: Subtracted via penalties paid to the U.S. Treasury.
$400 million: Subtracted via an earlier payment into a settlement fund administered by the Securities and Exchange Commission.
$500 million: To be subtracted via four proposed payments through 1995 to settle lawsuits.
$125 million: Milken’s remaining personal net worth not including hundreds of millions of dollars held by his wife, children and brother.
