Trial of Pal Poses Prospect of Testimony From Milken

The trial of a close friend and colleague of Michael Milken is due to begin today in federal court in Manhattan, with Milken himself high on the list of potential prosecution witnesses.

Alan E. Rosenthal, 52, who once headed the convertible bond department at Drexel Burnham Lambert’s junk bond headquarters in Beverly Hills, is accused of fraud, embezzlement and conspiracy. The charges relate to an alleged scheme in which Milken, Rosenthal and others at Drexel rewarded an East Coast money manager, David Solomon, for investing his clients’ funds in risky Drexel junk bonds.

The trial may mark Milken’s debut as a government witness, although sources said Friday that it isn’t certain that he will be called. Milken is serving a 10-year prison sentence in Pleasanton after pleading guilty to six securities fraud charges in 1990. Sources said that as of Friday prison officials had made no arrangement to move Milken to New York.

Court documents have made clear that if Milken testifies, his performance may be crucial to his efforts to get his sentence reduced. U.S. District Judge Kimba M. Wood has put off ruling on Milken’s sentence-reduction request until after the Rosenthal trial. The request is based on Milken’s lawyers’ contentions that he has cooperated extensively with prosecutors.

Milken’s testimony, however, may not be essential. Other former Drexel employees are expected to testify, as is Solomon himself. Solomon agreed to be banned for life from the securities business and paid a Securities and Exchange Commission civil penalty, but he was spared prosecution when he agreed to cooperate with the government’s investigation of Drexel.

Rosenthal was in the clothing business and a neighbor of Milken in New Jersey in the 1970s when Milken offered him a job with Drexel. Rosenthal moved to California when Milken moved Drexel’s junk bond operation to the West Coast.

During the government’s massive investigation of Drexel and Milken in the late 1980s, a number of former close Milken colleagues agreed to give evidence against him in exchange for immunity. But Rosenthal rebuffed such offers.

An 11-count indictment accuses Rosenthal of aiding in a scheme under which the Drexel office generated $1.6 million in phony tax losses to help Solomon reduce his taxes. The indictment also charges that Rosenthal helped Drexel misappropriate money from Solomon’s clients. Rosenthal has denied all of the charges.

Rosenthal’s attorney is well-known New York trial lawyer Peter Fleming Jr., who for a time represented Drexel before the firm decided to plead guilty to multiple felony counts in 1989.