Milken’s Term Cut; Can Be Set Free in Early ’93


Michael Milken, the influential Beverly Hills junk bond financier who became a symbol of 1980s greed, will be allowed to leave prison after serving just two years of a 10-year sentence for securities fraud and other violations, a federal judge ruled Wednesday.

The decision by U.S. District Judge Kimba M. Wood means that Milken, who once headed Drexel Burnham Lambert’s junk bond department, can go free by March 1, 1993. The ruling, which cited his cooperation with government authorities, cuts by a year the minimum 36 months he would have been behind bars under his original sentence.

A federal Bureau of Prisons spokesman in Washington said Milken could be released to a half-way house even before his two years are up. The judge specified, however, that Milken will still be required to spend three years in community service once he is released.

Wood based the reduction in sentence on Milken’s cooperation with federal prosecutors and the Securities and Exchange Commission since she originally sentenced him in November, 1990. In letters to the judge, prosecutors and the SEC had given Milken’s cooperation mixed reviews.


But Wood said in a 14-page opinion that “this assistance was substantial and warrants a reduction in sentence.”

As a result, Milken will serve slightly less than the two years and 11 days served by another prominent financier of the 1980s, admitted inside trader Ivan F. Boesky. Boesky’s cooperation with the government led to a string of criminal cases against prominent investment banking officials, including Milken.

Wood said she will allow Milken to serve less time even though she stated in a footnote that Boesky’s cooperation was more valuable to the government than Milken’s. In her ruling, the judge said she also took into account three other factors:

* That Milken has been a model prisoner at the minimum security prison camp at Pleasanton, Calif., and “has not only extensively tutored other prisoners, but also created innovative programs for them.”


* That he is making restitution to his victims by his agreement earlier this year to pay an additional $500 million to settle the numerous civil claims against him, in addition to $300 million he had already paid into a restitution fund.

* The chronic illness of one of his three children.

Milken, 46, was perhaps the nation’s most influential financier of the 1980s. He promoted high-risk, high-yield bonds that became the financing vehicle for many mergers and hostile takeovers. He also became hugely wealthy.

But the junk bonds he pushed led to a corporate debt crisis that drove many of Drexel’s former corporate clients to seek bankruptcy protection. Federal regulators also contended that Milken had contributed to the savings and loan crisis by promoting junk bonds as suitable investments for S&Ls;, although Milken strongly denied he added to the crisis.


Ultimately, Milken and Drexel’s activities became the focal point of a massive insider-trading probe on Wall Street. Drexel pleaded guilty to six counts of securities violations and collapsed into bankruptcy proceedings.

After a protracted investigation, Milken was indicted on 98 counts of securities violations, including insider trading. In 1990, Milken pleaded guilty to six narrow felony counts. He steadfastly denied engaging in insider trading, only admitting to working with Boesky to conceal the true ownership of stock, manipulating stock prices and helping a customer evade income taxes.

The judge’s ruling came in a request for a reduced sentence that Milken’s lawyers had filed last year. Milken lawyer Stephen E. Kaufman said: “The family is very pleased and gratified with the decision. It means Michael will be reunited with them at an earlier time.”

Otto F. Obermaier, the U.S. attorney in Manhattan, said the sentence reduction “shows the value of cooperating with the government in the prosecution of others.”


Wood said Milken had given “substantial” help to prosecutors by testifying against his longtime friend and Drexel colleague, Alan Rosenthal, who was convicted on one count in June. Some lawyers who observed the trial contended, however, that Milken’s testimony was weak and contributed to Rosenthal’s acquittal on four other counts.

The judge also noted that Milken’s information was helping the SEC to bring at least two enforcement actions, and said he had given additional help to the SEC and to federal prosecutors.

In a letter to the judge, SEC enforcement director William R. McLucas had said that Milken had not fully disclosed all the wrongdoing he knew of, and that his disclosures mainly dealt with former competitors rather than ex-Drexel colleagues or clients. But the judge said she based her decision only on facts government lawyers and Milken’s attorneys agreed on. McLucas declined to comment Wednesday.

Assistant U.S. attorneys who were directly involved in prosecuting Milken declined to comment on Wood’s ruling. But several former senior SEC officials who had played major roles in the Milken investigation said that they were disappointed by the reduced sentence, especially that Milken will serve less time than Boesky did.