The pressure on "junk bond" king Michael Milken and some top aides increased Wednesday, but lower-level associates targeted in the securities fraud investigation may get some relief.
Drexel Burnham Lambert's decision to plead guilty to federal criminal charges and pay a record $650-million fine means that the investment firm is also likely to cooperate with prosecutors in the ongoing investigation of Milken, head of its junk bond department in Beverly Hills, and some of his chief deputies.
"It can't help them, especially Milken and the other top guys under investigation," said a former federal prosecutor who works for a rival securities firm in New York. "The question will be whether the firm encourages its employees to come forward and talk."
A lawyer for an executive in Drexel's Beverly Hills junk bond operation who is under investigation said the firm's agreement may remove some of the U.S. attorney's motivation to indict a large number of employees.
"The fact that the government has made its peace with Drexel I can only view as a plus, as far as most of the individuals are concerned," said the lawyer, who asked that his name be withheld. "I would think that the peripheral people and the foot soldiers ought to be able to breathe a lot easier. But I'm not the United States attorney, and I can't give you any guarantees."
The lawyer's reasoning is that the government will not have to indict a host of other Drexel employees in hopes of persuading them to testify against Milken and any other higher-ups who may face charges.
But the lawyer did not think that the firm's tentative agreement would slow the effort to indict Milken.
"I believe that whatever is going to happen there will not be changed in the mind of the U.S. attorney as a result of this plea agreement," he said.
Indeed, at his New York press conference, U.S. Atty. Rudolph W. Giuliani said, "This agreement does not relate to any other party or person." He added that the investigation is continuing.
Figuring out the impact of the decision on Milken and other Drexel employees was hampered because no details of the plea bargain were released Wednesday.
Giuliani and a Drexel spokesman refused to identify the specific six crimes to which the firm has agreed to plead guilty or the degree to which Drexel has agreed to encourage employees to cooperate. Giuliani also declined to answer when asked if the firm had agreed to dismiss any employees as part of the agreement.
Drexel had been balking at Giuliani's insistence that one of the counts involve a $5.3-million payment by the firm to a business controlled by convicted stock speculator Ivan F. Boesky. The government has argued that the money was part of an illegal scheme between Boesky and Milken.
A spokesman for Milken said: "Michael Milken is not a party to the Drexel settlement. There is no change in his position, and his attorneys are continuing to prepare to defend him against any charges that might be brought."
Milken has repeatedly denied any wrongdoing and is also fighting a civil lawsuit filed last September by the Securities and Exchange Commission.
Various executives in Drexel's Beverly Hills office also did not return calls.
A handful of top young investment bankers at Drexel had threatened to resign if the firm struck a deal with the government that hurt Milken's chances of defending himself.
A former Drexel executive said Wednesday that he anticipates that some top people will fulfill the threat and leave if they determine that the agreement damages Milken or other individuals.
"Those guys are not George Custer at the Little Big Horn," said the former Drexel executive. "They really believe that Milken's and the firm's case was sufficiently strong that it could be defended. They didn't think this thing was going to get settled."