FDIC Rejects Proposed Settlement that Would Have Left Milken in PrisonBy Victor F. Zonana
Los Angeles Times
The Federal Deposit Insurance Corp. Thursday rejected a proposed settlement of civil lawsuits that would have left imprisoned financier Michael Milken with a personal fortune of $125 million and his family and former associates with hundreds of millions of dollars more.
In a letter to senior U.S. District Court Judge Milton Pollack, the 85-year-old jurist who spearheaded the settlement, the agency said its board decided to reject the plan because members lacked "adequate or sufficient information upon which (to) base an informed judgment."
The FDIC'S rejection was a severe blow to settlement efforts. If the plan ultimately fails, it could lead to at least a decade of litigation -- although those who favor a settlement observed that the rejection was not absolute and final.The agency expressed hopes Thursday that its "concerns can be addressed," suggesting that it might eventually approve the settlement of more than 150 lawsuits involving the 1990 failure of Drexel Burnham Lambert Inc. and myriad other financial institutions which invested in Drexel-issued high-risk, high-yield securities, or junk bonds.
The proposed settlement, under which taxpayers would have recovered about $500 million for losses incurred in the savings and loan fiasco, had drawn fire from many inside and out of the financial world, including former FDIC chairman L. William Seidman and Rep. John Dingell (D-Mich.) the powerful chairman of the House Energy and Commerce Committee, which oversees the regulation of financial markets.
The objections were based on two factors: that Milken would remain one of the wealthiest men in America, and that U. S. taxpayers would only recover a tiny fraction of the $500 billion the S&L crisis is ultimately expected to cost them.
The FDIC's decision provoked anger and confusion among the attorneys for parties in the settlement: "The FDIC has obviously reneged on the settlement reached by its attorneys," said one prominent attorney in the case. "I think it's plainly political."
Milken and many of his former associates at Drexel were sued by the
FDIC and the Resolution Trust Corp., which is charged with cleaning up the S&L mess, because many of the S&Ls that failed spectacularly had invested heavily in junk bonds peddled by Milken and his high-yield bond department at Drexel.The FDIC said the settlement was deficient because it failed to:
* Disclose detailed financial information about the defendants and their contributions to the settlement.
* Give the FDIC a chance to determine if the defendants were making an appropriate payment "considering their alleged civil responsibility."
* Give the FDIC and the Resolution Trust Corp. the right to refuse to participate in the deal if they were unhappy with it.
Milken, as reported, had agreed to pay $500 million, or 80 percent of his current net worth of $625 million, into the $1.3 billion settlement pool. Milken has already paid $400 million into a Securities and Exchange Commission-administered settlement fund, bringing his total contribution to the settlement to $900 million.
Of the balance of the settlement, $100 million would have come from various insurance companies and $300 million from about 200 former Milken associates at Drexel.
Pollack, who is holding a hearing Friday in what has suddenly become a dramatic attempt to rescue the settlement rather than the pro forma affair that many had expected, could not be reached for comment Thursday.
But last week, in an interview with the Los Angeles Times, the jurist called it "a very fair settlement," adding "and I'm not easy."