Cutting The Deal of His Life: Michael Milken

As the presiding financial genius of the Roaring Eighties, Michael Milken pioneered the $200 billion junk-bond market that powered the decade’s epic takeover wars. But last week a hounded and weary Milken, who had vowed to fight a 98-count indictment that the Government brought against him last year, agreed to settle the largest securities-fraud case in U.S. history. Faced with the threat of expanded new charges, the former head of Drexel Burnham Lambert’s junk-bond department struck a tentative deal to plead guilty to six criminal counts and pay a $600 million penalty. Milken, who earned $550 million from Drexel in 1987, would be paying the heaviest fine ever levied against an individual. “This was Michael’s decision,” said a person close to the case. “It was his shot.”

While sources confirmed the outlines of the plea bargain, the deal remains unofficial until it receives approval from a U.S. judge in Manhattan this week. Among the lingering issues was the length of the jail term that Milken, 43, would receive. Although he could draw a maximum of 30 years, the Government was expected to recommend no more than a five-year sentence. Moreover, prosecutors were said to have agreed to drop charges against Milken’s brother Lowell, a former Drexel executive.

Milken’s financial penalty would far exceed the $100 million that Wall Street speculator Ivan Boesky paid upon pleading guilty to a single count of insider trading in 1986. With cooperation from Boesky, prosecutors built their case against Drexel and Milken. After paying a record $650 million penalty for securities violations a year ago, Drexel declared itself bankrupt last February.

While Milken had proclaimed his innocence from the start, the long and demanding case clearly wore down his will to fight the charges. “He looked at the cards he was dealt, and must have figured that he couldn’t have played them any other way,” says Andrew Astrachan, a former Drexel employee. “No one should question his decision to settle.” For prosecutors, meanwhile, the agreement ends the need for a major trial that could have dragged on for years at a substantial cost to taxpayers.

The plea bargain capped months of rumors that the Government was ready to expand an indictment already laden with charges of racketeering, securities fraud and insider trading. Prosecutors had given Milken until last Friday to settle the case or face the new charges. Under terms of the agreement, Milken is to plead guilty only to securities-fraud violations, which carry lesser prison sentences than his earlier charges.

The deal reportedly included another key condition that Milken had sought. According to sources, Milken will not be required to testify against Wall Street traders and speculators in other Government cases. “Michael Milken is no Ivan Boesky,” said one Wall Streeter close to the case. “There are no revelations that Michael can give the Government.” Some legal experts doubted that prosecutors ever intended to use Milken in that manner. Said Kenneth Schacter, a former U.S. Attorney in Manhattan: “Once you get to the mountaintop, it doesn’t make sense to negotiate for people lower down.”

Will justice be served by the proposed penalty? According to Astrachan, “Michael Milken has been chewed up and spit out by the Government. It’s disgusting the way that a guy who should be held in high esteem has been made out to be a scapegoat.” But James Kuhn, a professor of ethics at Columbia Business School, argued that the settlement “punctuates the end of an era of greed, excess and money madness.” Added Kuhn: “It’s astounding that someone so bright would cross the line. You can now point to Milken as an example of what happens when you break the law.” In his fall, the most powerful financier of the 1980s remains one of the decade’s most poignant symbols.