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'Junk Bond' King Milken Indicted for Stock Fraud

March 30, 1989|SCOT J. PALTROW | Times Staff Writer

NEW YORK — Michael Milken, the Drexel Burnham Lambert "junk bond" wizard in Beverly Hills who revolutionized U.S. corporate finance and raised funds for dozens of corporate raids, was indicted Wednesday on federal racketeering, insider trading and other securities fraud counts.

The long-expected indictment also named Milken's brother, Lowell Milken, and a former Drexel trader, Bruce L. Newberg.

If convicted on the racketeering charges, the three could face an astronomical amount in financial penalties: The indictment asks that they forfeit a total of $1.85 billion, representing their salaries, other compensation and their share of Drexel profits, all earned in what the government charges was a continuing criminal enterprise operated at the New York-based investment banking firm.

Fines Could Be Doubled

In addition, the federal racketeering law, known as the Racketeer Influenced and Corrupt Organizations Act, or RICO, at least theoretically could subject them to twice that amount in fines. This means each defendant could face up to $3.7 billion in fines on the two RICO charges. They also face additional fines on the other counts totaling in the millions of dollars.

Michael Milken faces a maximum jail sentence of about 300 years, with lesser amounts for the other two defendants.

The indictment apparently marks the end of Milken's 20-year career at the firm that his junk bond operation transformed from a second-rank investment bank to one of the powerhouses on Wall Street. Junk bonds are high-risk, high-yield debt securities.

Immediately after the 98-count indictment was returned by a federal grand jury, Drexel said that Milken, 42, and his brother, 40, had requested and been granted leaves of absence. John Kissick, formerly head of the firm's corporate finance department in Beverly Hills, has been expected to take Michael Milken's place.

The criminal charges result from the biggest criminal securities fraud investigation ever undertaken by the government. The inquiry has been under way for over two years. Benito Romano, the U.S. attorney in Manhattan, said "this specific investigation is continuing" and didn't rule out the possibility that additional individuals may be charged soon.

The charges filed Wednesday mean that Newberg is now facing two separate racketeering indictments. He is also named as a defendant in an indictment returned last July relating to Princeton/Newport Partners, a small investment firm that did business with Drexel. The charges against him in the two indictments appear to cover the same general chain of events.

Lowell Milken, a lawyer, gave up a promising legal career in the 1970s to help his brother run Drexel's Beverly Hills office. The indictment charges that Lowell "was his brother's principal adviser in the conduct of the conspiracy."

Sources at the firm said the indictment of Michael Milken probably would clear the way for Drexel to swiftly settle civil charges filed by the Securities and Exchange Commission. Milken's continued presence at the firm was a major sticking point in the talks.

Settlement with the SEC, in turn, would remove the last obstacle to Drexel's carrying out its pledge to plead guilty to six criminal counts and pay $650 million in financial penalties. The firm had entered into that agreement in December, in part to avoid more serious racketeering charges and a possible huge forfeiture of assets.

The 110-page indictment returned Wednesday appears to closely follow the civil charges contained in an SEC lawsuit filed in September against Drexel and the Milkens. It contains only a few charges that weren't in the SEC's complaint and leaves out a number that were.

The indictment accuses Michael Milken of a prolonged pattern of insider trading, stock market manipulation and defrauding clients. It claims that he sought to enrich himself through self-dealing at the same time that he was acting on behalf of Drexel's customers.

Areas of Wrongdoing

The indictment charges three broad areas of wrongdoing. One involves transactions with former stock speculator Ivan F. Boesky, who pleaded guilty to a single criminal charge and gave prosecutors the information that touched off the Drexel investigation. The indictment charges that Milken used Boesky's firm to hide illegal stock trading.

The second broad area involves transactions with Princeton/Newport Partners, in which Drexel and Milken allegedly helped Princeton/Newport carry out tax fraud through sham securities trades with Drexel. Among other charges, the indictment alleges that Drexel used Princeton/Newport to illegally manipulate the price of COMB Co. securities in 1985.

The third general area involves alleged straight insider trading in the securities of Lorimar Inc. and Viacom Inc. by Michael Milken.

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