Milken Testifies in Defense of Former Fund Manager : Securities: The convicted junk bond king says Patricia Ostrander never sought any type of payoff for buying from Drexel Burnham Lambert.

Michael Milken began testifying as a defense witness Tuesday in the criminal trial of a former Fidelity Investments mutual fund manager accused of taking payoffs from Drexel Burnham Lambert’s junk bond department.

Milken, the imprisoned former head of Drexel’s junk bond operations, testified that he had never known the former fund manager, Patricia Ostrander, to ask for any type of bribe. Milken also said he had a long professional relationship with her, and said that at the time she bought them, there was no guarantee that the securities Ostrander allegedly was allowed to purchase as a bribe would turn out to be valuable.

Ostrander was named in a three-count federal indictment in October, accusing her of accepting payoffs in exchange for investing $85 million of her customers’ money in risky junk bonds sold by Drexel. The alleged bribe was the right to purchase valuable interests in an exclusive partnership set up by Milken. The partnership owned equity warrants, or the right to buy common stock, issued in connection with the 1985 leveraged buyout of Storer Communications.

Ostrander’s initial personal investment of about $13,000 in the partnership interests allegedly brought her a profit of nearly $740,000.

Ostrander, who denies the charges, left Fidelity in 1987 and is on leave as president of Ostrander Capital Management in Boston.

Milken did not volunteer to testify for Ostrander, but was subpoenaed as a defense witness in the case. He was flown to New York from a minimum-security federal prison camp in Pleasanton, Calif. where he is serving a 10-year sentence.

The demand that he testify as a defense witness put Milken in a delicate position. He has asked a federal judge to reduce his sentence, a request based on Milken’s cooperation with prosecutors and his role as a prosecution witness since his guilty plea to six felony counts. A ruling is expected on the request imminently.

Milken’s appearance in federal court in Manhattan Tuesday marked his second appearance as a witness there in less than two months. In June, he testified as a prosecution witness against a former Drexel colleague, Alan Rosenthal, who ended up being convicted on one count but was acquitted on four more serious charges related to alleged securities fraud.

It wasn’t clear how likely it is that Milken’s testimony will help Ostrander. Under questioning from defense lawyer Harry L. Manion, he described Ostrander as a skeptical fund manager who didn’t buy securities based only on Milken’s recommendation.

Asked if Ostrander was a willing buyer of junk bonds early in their professional relationship, which began in the 1970s, Milken said: “Whether it was early or late, she never was an easy sell.”