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TIME: Almanac 1993
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TIME Almanac 1993.iso
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041089
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04108900.039
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1992-09-23
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╒ NATION, Page 42Taking It All Back, Plus Interest
The U.S. wants billions from the king of junk bonds
The indictment was long anticipated, but the size of the
proposed penalties was enough to provoke a collective gasp
among Wall Streeters. Last week a federal grand jury in
Manhattan charged junk-bond king Michael Milken, 42, his brother
Lowell, 40, and Bruce Lee Newberg, 31, a former colleague of
theirs at the investment firm Drexel Burnham Lambert, with a
total of 98 felony counts of stock manipulation, insider
trading, racketeering and other crimes. The indictment calls for
the three accused to forfeit their total compensation of $1.5
billion for 1984 through 1987 (plus interest of $257 million)
and pay fines of $3.7 billion. If convicted on all counts,
Milken could face a maximum prison sentence of 520 years.
The most stunning new disclosure was the Government's
calculation of Milken's income, which had previously been
estimated at a mere $50 million to $100 million annually. But
Milken's salary and bonuses actually amounted to $554 million
in 1984-86 and an additional $550 million in 1987, the
indictment says.
Milken's unprecedented income was the result of his
employment contract with Drexel, where he has been the firm's
biggest source of profits as head of its Beverly Hills-based
junk-bond department. Milken almost single-handedly created the
junk-bond market, which has grown from $1 billion in 1981 to
$180 billion last year. His downfall began three years ago, when
arbitrager Ivan Boesky, collared on insider-trading charges,
began singing to prosecutors about alleged stock-fraud schemes
he carried out with Milken and Drexel. Last December Drexel
struck a deal with prosecutors that called for the firm to plead
guilty to six felony charges and pay $650 million in fines.
Drexel also said it would withhold $200 million in compensation
owed to Milken for 1988.
Under last week's racketeering charges, the Government can
freeze the Milken brothers' assets even before they are tried.
Prosecutors are expected to ask the investment bankers to post
a $1 billion bond to prevent such an asset seizure. Last week
Milken said he would take a leave of absence from the firm to
fight the charges. Said he: "After almost 2 1/2 years of leaks
and distortions, I am now eager to present all the facts in an
open and unbiased forum."
As a defense tactic, Milken's lawyers will probably attack
Boesky's credibility because he received a reduced charge in
return for his testimony. They could also challenge the
constitutionality of the Racketeer Influenced and Corrupt
Organizations law, the statute under which Milken has been
charged. Some legal experts believe the law, originally designed
to combat organized crime, gives prosecutors unfair leverage in
white-collar-crime cases.