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U.S. Uses Mob-Style Tactics in Chasing Milken

February 05, 1989

Why are the Manhattan U.S. attorney's office and the Securities and Exchange Commission relentlessly pursuing Michael Milken, the man who is credited with providing the ammunition for the recent wave of mergers, acquisitions and leveraged buyouts? In my opinion, they are much more guilty of mob-style tactics than either Milken or Drexel Burnham Lambert.

Let's look at the facts: The U.S. attorney's office has been waving the Racketeer Influenced and Corrupt Organizations Act over the heads of Drexel like an executioner at the gallows, and they've been making unreasonable, unprecedented and even unconstitutional requests of both Milken and Drexel. This modern-day extortion (not negotiation) is unheard of, and I bet the rest of the world is laughing at the United States' inane (and insane) system of justice.

As I read the headlines, I wonder what motive there would be to waste the taxpayer's money chasing ghosts rather than concentrating on the real issues of the day, including the penny stock scams and thriving boiler room operations.

I think I know the answer. Remember that Drexel was a lowly, second-rate firm before Milken; after Milken correctly discovered and tapped a niche in the bond market, Drexel soon become the leader in "junk bond" financing. The old-line investment bankers (Salomon Bros., Morgan Stanley & Co., Goldman, Sachs & Co., etc.) are scurrying to catch up and desperately want market share.

The fact that Milken moved West made it even easier to portray Drexel as a loose cannon that needed to be silenced. It is common knowledge that New Yorkers like to think of themselves as the gods of global finance and anything coming from California must be tainted by overexposure to the sun. And in came former U.S. Attorney Rudolph W. Giuliani to do the deed. Isn't that convenient? Even as you read this, I can visualize the old-line firms drooling over all that business Drexel will lose and they will gain. If you can't beat 'em fair, then get the sheriff on your side.

Stamping out the Milken machine will certainly not put an end to junk bonds, but it will hurt the market and ultimately bring down prices. Heretofore, Milken and his staff at Drexel brought stability to the junk bond market; after the Justice Department is through, Milken will be gone and the market will drift aimlessly. Some legacy, Giuliani!



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