Milken to Pay $47 Million to Settle Charges
Former junk-bond king Michael Milken agreed Thursday to pay $47 million to settle new federal charges that he violated his lifetime ban from the securities business.
The charges, contained in a lawsuit filed in New York by the U.S. Securities and Exchange Commission, stem from corporate finance deals involving Rupert Murdoch’s News Corp., MCI Communications Corp. and New World Communications Group.
Although Milken has insisted he acted as only a “macro” consultant on the transactions, the SEC--after a two-year investigation--said his activities “amounted to being a broker,” according to William R. McLucas, the agency’s enforcement chief.
However, Milken, 51, of Encino, does not face a return to prison. U.S. Atty. Mary Jo White decided not to seek revocation of the financier’s much-extended probation, which will expire Sunday.
In a letter to federal Judge Kimba M. Wood, who oversees Milken’s probation, White said that there was no evidence that Milken had tried to mislead the court about his consulting work and that he had relied on legal advice that the work would not violate his ban.
Milken spent two years in the federal penitentiary at Lompoc and paid $1.1 billion in fines and damages after pleading guilty in 1990 to six federal counts of felony stock fraud. In a related order in 1991, he was permanently barred from working in the securities industry.
The criminal case grew out of Milken’s work in high-risk, junk-bond finance in the 1980s. From the massive X-shaped trading desk at the Beverly Hills office of the now defunct Drexel Burnham Lambert, Milken used the innovative financing to help fuel a wave of corporate takeovers in what became known as “the decade of greed.”
Milken became a lightning rod for controversy in part because of his eye-popping personal riches, including salary and bonus pay of $550 million for 1987 alone.
In settling the new charges, Milken did not admit or deny any wrongdoing and did not receive a fine. Rather, he agreed to give up the $42 million in fees that he and his firm earned in the deals, plus $5 million in interest.
Milken is not expected to have any trouble paying the money. Forbes magazine estimates that he is still worth about $700 million.
According to the settlement decree, Milken has 10 business days to pay up, “by cashier’s check, certified check or postal money order.” The money will go to the U.S. Treasury.
“Mr. Milken received legal advice before engaging in any consulting activities,” his lawyer, Richard V. Sandler, said in a statement. “However, Mr. Milken is battling prostate cancer and has decided not to contest the SEC allegations to determine who is right and who is wrong.”
Sandler said Milken’s cancer is in remission and he is devoting most of his time to CaP Cure, a foundation he established to fight the disease.
One of the deals cited in the SEC lawsuit was MCI Communications’ 1995 agreement to invest up to $2 billion in Murdoch’s News Corp.
The other deal, though not specified in the complaint, was News Corp.’s initial $500-million investment in financier Ronald O. Perelman’s New World Communications Group in 1994, according to Sandler. News Corp. later bought New World, a string of television stations, in a deal completed last year.
In both deals, the SEC said, Milken and his firm “introduced companies, suggested business arrangements between them, participated in negotiations regarding the structure of such transactions and securities issued in connection with these transactions”--all of which the SEC said amounted to being a broker.
“He knew those activities were questionable when he went into them,” said Roy C. Smith, a New York University finance professor and former general partner at the investment banking firm of Goldman Sachs & Co.
The SEC also investigated Milken’s role in the $7.5-billion sale of Turner Broadcasting System to Time Warner, but that deal was not mentioned in the suit.
Milken’s defenders for more than a decade have portrayed him as the victim of a government vendetta.
“The agency has no personal bone to pick with Mr. Milken,” McLucas said in an interview. “This has to do with vindicating a commission order involving someone with a propensity to violate the law. He should not be in the securities industry and handling people’s money.”
John H. Sturc, a lawyer for Gibson, Dunn & Crutcher in Washington, D.C., was SEC associate director of enforcement when the agency brought its initial case against Milken that led to his banishment from the brokerage industry.
“Regardless of what his defenders may say, those were not technical charges he pleaded guilty to,” Sturc said, referring to the criminal charges. “They included wholesale stock manipulation and commercial bribery.”
Sandler said Milken has no intention of doing further consulting on deals.
He has not retired from the business world, however.
Last month, Knowledge Universe, an education company backed by Milken and Oracle Corp. Chief Executive Lawrence Ellison, bought a 21.2% stake in Nobel Education Dynamics Inc., which operates elementary and secondary schools.
