The Predators’ Ball (49 page)

This was the kind of rumor that had swirled around Milken and his inner circle for years: that first he had created these players such as Spiegel and Carr, made them his captives with their pools of capital at his disposal, and then rewarded them further (sometimes personally, other bond buyers speculated) with this kind of inside information. Regan and Thorp were slightly different, insofar as
they were not running financial institutions dependent on Milken's junk bonds but were money managers and Milken's partners in some of his lucrative investment partnerships. He could conceivably have profited directly from rewarding them. At the close of this deposition, when Milken was asked whether he had any knowledge of certain individuals or any interest in certain limited partnerships (which presumably had been buyers of the securities that were the subject of this investigation), one entity about which he was asked was One First National Plaza, Suite 2785, Chicago—the address of at least two Milken-Regan-Thorp partnerships, Belvedere Securities and Dorchester Government Securities. “Don't recognize the name,” Milken replied.

One former Drexel employee, who was not aware of the Caesars World investigation, commented, “What I think may happen is this: An exchange offer is coming up, and Mike wants it to go well [have a high acceptance rate]. So he gets his clients to buy the securities with advance knowledge that there will be an exchange offer in three weeks. That way, they all make out—plus the exchange offer goes through.”

Even if all this were true, the government could pursue it as they did in Caesars World; but without an informant they would be hard pressed to make a winning case. For Milken—as for Boesky, in the government's numerous investigations of him, prior to Dennis Levine's turning state's evidence—there was always a credible explanation for his having bought a security.

What was telling in interviews with scores who knew Milken, however, was that so many thought he was not above reproach, simply beyond the reach of the law. Some thought that he would violate the securities laws because he had the archetypal outsider's disdain for convention and the established rule, because he believed he was responsive to some higher law. Some thought he would do it because he was increasingly possessed by the machine he had created and would do anything to fuel it. Some thought he would do it because he had the trader's compulsion always to beat his record, and, after ten years of beating the previous year in a blinding winning streak, there was no way to go on beating it without having an edge.

Almost no one, however, thought he would do it out of something as simple, and base, as avarice. In fact, many who know Milken marvel at how a man of such wealth can remain so indifferent
to its usual pleasures. By 1986 a few close to Milken estimated his net worth at $1 billion or more. Moreover, it was said at Drexel that with the help of his brother, Lowell, he had been able to shelter much of it.

But Milken was clearly not seduced by the material things his money could buy. For Milken, there was no equivalent of Ivan Boesky's statue garden, or Peltz's Palm Beach palace, or even Icahn's Foxfield. Milken's house in Encino is charming but unprepossessing, no twenty-two-room manor house. It has no surrounding acreage for isolation but sits on a fully developed cul-de-sac where neighborhood children (and probably Milken's own) ride their bicycles up and down.

He was said, by one client who visited his home, to have an old nineteen-inch color TV that was always on the blink, and to have only recently purchased a VCR. His home was decorated with inexpensive wicker furniture, no antiques, no art. Until lately, too, he had driven a dated Oldsmobile. The firm had finally prevailed upon him to get a driver—an insistence that may have been triggered by an auto accident Milken had in 1984, resulting in a lawsuit that he finally settled in the fall of '86 by paying $30,000. Now he owned a Mercedes Turbo Diesel and had a driver—but the driver was a concession to personal safety, and the antithesis of Milken's style. In another such concession, Milken had recently hired four bodyguards.

His wife, Lori—who was Milken's high-school sweetheart and, according to Steve Wynn, the only girl Milken ever dated—apparently had no greater desire for conspicuous consumption than her husband did. She was said to appear at black-tie gatherings, such as those for the Simon Wiesenthal Foundation (the Nazi-hunting organization) wearing a cloth coat and inconspicuous jewelry, while other women were swathed in furs and bore rock-size gems. What Lori Milken did care about, apparently, was writing; it was said to be her consuming interest, and she had been enrolled in various writing workshops over the years. She wrote fiction, mainly short stories, apparently none of which had been published. Milken reportedly offered to buy her a publishing company, something she declined.

There seemed to be, then, literally no personal use for the fortune Milken had built. He did contribute in a low-profile way to certain causes, like the Simon Wiesenthal Foundation and (through
the Milken Family Foundation) many programs in the field of education, both in California and nationally; but if he was a major philanthropist, that was a well-kept secret.

While Milken apparently chose to not spend his money, however, he certainly had been driven to accumulate it from the very start. And, after all these years, he was still trying to shave every trade, still trying to milk his best clients (“If we don't make money from our friends, who will we make money from?”), still demanding everything but the firstborn son in deals where he could get it. And still, in the view of one Drexel employee, shortchanging his partners.

“Michael has a deal with the firm on every LBO,” said this employee. “Michael [with his group] gets a piece, the firm gets a piece, a fund that corporate finance has gets a piece. Michael, of course, gets the lion's share.

“Then Michael goes and tells the client that ten percent of the equity has to go to Drexel and thirty percent has to go to the investors, because they [the investors] need that much to get the proper risk-reward ratio for taking all this subordinated debt. Then he doesn't give the thirty percent to the investors. He gives maybe ten percent. And the other twenty percent he squirrels away.

“That,” this employee added, “has caused tremendous ill-will within the firm. Fred [Joseph] knew about it, did nothing. It's like, a lot of people will cheat on their income tax, they figure it doesn't hurt anybody but the impersonal government, but not many people will cheat on their friends.

“In addition to being a talented, creative genius,” he concluded, “Michael is among the most avaricious, ruthless, venal people on the face of the earth.”

By 1986, it seemed to some who had known Milken for years that he, always wired, was now like a whirling dervish, spinning out to the very edge of control. One longtime buyer commented that there seemed to be less and less joy in Milken—something that had been part of him in the early years—and more compulsion. Others agreed that he was far more “driven” than when they had met him in the seventies, though even then he had been one of the most intense and kinetic people they had ever encountered. In a deposition taken during a 1980 SEC investigation, Milken testified that in 1979 he had had about two hundred phone conversations on a routine day. Moreover, he added, while he was speaking to someone
he could be carrying on “ten other conversations” at the same time. “I would say that I listen to no more than twenty-five percent of the conversations I have with anyone during the trading day. . . . I would come in and out, buy and sell securities during any conversation.”

In an SEC deposition in 1982, during another investigation, Milken testified that he had about five hundred phone conversations a day. And in a deposition in September 1986 he said he participated in “potentially one thousand transactions every day.” But this superhuman acceleration was not without its cost. “If you talk to Michael for three or four minutes,” said one associate, “he can grasp what it may take other people hours or even a week to learn. But when you take three or four minutes down to two minutes, his reliability starts being worse. But he still wants to be in the decision process. Then he gives you forty seconds, and his decisions are bad, made on too little input. Add to all that his imperialness and sense of his own infallibility.”

Out of about thirty or forty conversations that this associate had with Milken on a given bond issue, he said they did not have “more than two or three half-meaningful discussions. Most of those conversations lasted about thirty seconds, conversations where you're on the phone with him and you don't know if he's listening to you or talking to someone else, covering the mouthpiece. You're talking, you finish making your point, and then he says (one of his most often-used expressions), ‘I'm back.' ”

By 1986, he concluded, Milken “never had enough information. His retentive powers were amazing—but then that phenomenal repository got filled up, wasn't retaining any more.”

Some thought that Milken was increasingly out of touch, not only because he was operating at such velocity, but also because in his somewhat calmer moments off the trading floor he had succumbed to hubris. He had always cultivated a personal style that was modest, deferential. He liked to think that he appeared even humble. But years of rarely being challenged, of seeing his influence skyrocket, of having his acolytes and clients hang on his words, had taken their toll. So many treated him as though he were the oracle—and Milken began to act as though he were.

Throughout 1985 and 1986, the chairmen of American companies—not the Fortune 500, but sizable, $300 million companies—had been making the trek to Beverly Hills to pay homage. Milken
would see almost no one during the trading day, so he scheduled these appointments before the market opened (starting at 4:30
A.M
.) and after its close. And there, in his throne room, he would finally forsake the thirty-second bursts and segue into monologues on macroeconomics, on the state of the world, on whatever came into his imperial mind.

On the final morning of the Tokyo bond conference in November 1986—the inaugural of Milken's effort to target Japan, having already captured so much of the domestic territory—Mike Mansfield, the crusty eighty-seven-year-old U.S. ambassador to Japan who had been a luncheon speaker at the Drexel conference, invited Milken to a private breakfast meeting at the embassy. It was without specific purpose, a formal, courtesy visit. Such meetings have their own protocol: polite conversation, filled with give-and-take, not overextended. Milken, however, reportedly held forth for close to an hour in a monologue that barely allowed Mansfield to get a word in edgewise. Off and running, he is said to have pontificated until the visit's end on the economy, bonds, world politics, currency rates, macroeconomics. The gospel according to Milken. He had long been the fiscal evangelist, but now there was a self-importance which was blinding him, certainly to social conventions—and probably to much more.

D
REXEL EXECUTIVES
had just returned from the Tokyo bond conference in November '86, flushed with the success of that international inaugural, when—at the market's close on Friday, November 14, 1986, the day that they would thereafter refer to darkly as “Boesky Day”—the announcement came across the tape that Ivan Boesky had pleaded guilty to insider trading and had agreed to pay the largest fine ever, $100 million. He would, moreover, be cooperating with the government in its ongoing investigation of insider trading on Wall Street. At Drexel in New York, the leatherbound volumes of the $640 million much-disputed Boesky underwriting done in the spring of 1986 had been delivered that day to the office of Stephen Weinroth, the main investment banker on the deal, who would typically add these volumes to those of his other deals on his office shelves. Weinroth was not in the office. Hearing the news, his secretary put them in the closet.

Over the next four months, Weinroth, who like several others is said to have argued against doing the Boesky underwriting, was responsible for its unwinding. In the end, the bondholders were made whole on their investment; it was Boesky's equity partners in his arbitrage fund who suffered losses, and who sued Boesky, Drexel, and Fried, Frank, Harris, Shriver and Jacobson, the law firm that was counsel to Boesky in this and most other matters. When the unwinding was completed, in mid-March 1987, Drexel commemorated it not with the traditional deal paperweight, a Lucite-encased miniature prospectus cover, but with a giant pink eraser, bearing the amount of the ill-fated offering in parentheses ($640,000,000).

The Boesky-Milken relationship, however, was not so erasable. Within minutes of the announcement of Boesky's plea, the SEC issued subpoenas seeking information about trading in a dozen securities and the role in those transactions of Michael Milken, Carl Icahn, Victor Posner, Boyd Jefferies of the Los Angeles-based brokerage firm of Jefferies and Company, and others. Drexel executives knew then that their worst fears at the time of Dennis Levine's arrest in May, which had receded amidst the euphoria of the summer and fall of '86, had been realized.

When Levine was arrested, the quick consensus at Drexel was that he would do anything, say anything, to save himself. He had been at Drexel for only a little over a year, however, and his colleagues in corporate finance in New York didn't think he had been close enough to Milken and his group to know much about what really went on in the Wild West. But what if he knew just a little? Or what if he made it up? Or what if he squealed on someone who did know?

Through the summer, those whom Levine had earlier convinced to trade information with him, and whom he now was trading to the government, emerged to take their pleas: investment bankers Ira Sokolow from Shearson Lehman Brothers; David Brown from Goldman, Sachs; Robert Wilkis from Lazard Frères; and lawyer Ilan Reich—Martin Lipton's protégé—from Wachtell, Lipton. With each successive revelation, however, the scandal seemed to move farther away from Drexel, becoming more and more the Wall Street scandal; and the Levine ring, moreover, appeared to have been comprised of second-tier M&A players. There was no hint of its touching the figure at the apex of that world.