Milken to Pay $500M, Serve 40 Months under SettlementBy Victor F. Zonana
Los Angeles Times
Imprisoned financier Michael Milken will retain a personal fortune of at least $125 million under the proposed settlement of more than 150 securities and other civil lawsuits filed over the collapse of Drexel Burnham Lambert Inc., Drexel attorneys said Thursday.
The sum does not include an estimated $300 million to $400 million that Milken's wife, children, and brother will be permitted to keep, ensuring that the Milkens retain their status as one of the nation's wealthiest families.
Many observers of the financial scene were astounded that the man who has shouldered much of the blame for the rigged markets and speculative excesses of the `80s -- and the resulting financial hangover in the `90s -- will emerge with a family fortune of perhaps half a billion dollars.
"It's the kind of thing that leaves you shaking your head," said Richard C. Leone, executive director of the 20th Century Fund, a public policy group, and a former managing director of the New York investment bank Dillon, Read & Co.
"We're supposed to severely punish people who do well for themselves by doing evil to others," he said. "That's part of the social contract."
Others took a more measured approach to the settlement of litigation that some legal experts say might otherwise have dragged into the next century.
"The moral algebra is very difficult," said financial historian and author Ron Chernow." Do you assume that every dollar the Milkens amassed was ill-gotten? How do you assess the value of a 10-year prison sentence?"
Milken popularized the use of high-risk, high-yield securities when he headed the junk-bond department at Drexel. In 1990, he pleaded guilty to six felonies and was sentenced to 10 years in prison. Drexel, which made a fortune masterminding corporate takeovers, filed for bankruptcy in February 1990 in the largest collapse ever of a Wall Street concern.
Milken is expected to serve only 40 months at Federal Prison Camp Pleasanton in California, a minimum-security facility, for his securities law violations. He is expected to sell off some personal junk-bond holdings from his prison bunk to pay the settlement, which will be made in four installments stretching into 1995.
Under terms of the settlement, Milken must pay out $500 million, or 80 percent of his current personal net worth of $625 million, into the $1.3 billion settlement fund. Milken has also already contributed $400 million into a Securities and Exchange Commission-administered settlement fund and has paid penalties of $200 million to the U.S. Treasury.
"On one hand, Milken is paying a severe emotional and professional penalty. One the other, it is frustrating to know that he is being left with a king's ransom," Chernow added.
The moral equation is complicated by Milken's pre-incarceration lifestyle, which was relatively modest -- at least when compared to other such other `80s rogues as stock speculator Ivan Boesky. "For Milken, the ultimate high was going to work every day -- not going home and spending the loot," the historian said.
"I think it's a very fair settlement -- and I'm not easy," added U.S. District Court Judge Milton Pollack, the 85-year-old jurist who is credited with the extraordinary achievement of driving the parties to settle.
"You also have to remember that none of these claims have been tried," Pollack added. Had the cases gone forward, the outcome could have been different, with Milken either prevailing or paying more.
Under terms of the settlement, if Milken hid any assets from the court that were subsequently uncovered, those assets would be forfeited to the settlement fund. Milken would also be subject to prosecution for perjury.
Ken Lerer, a spokesman for Milken, declined comment on the settlement or its terms, citing a gag order issued by Pollack. "We've been instructed by the court not to comment on anything at all," Lerer said.
Other members of the financial community were not so reticent.
"Where is the justice?" asked Henry Kaufman, the respected former chief economist of Salomon Bros., who noted that the Milken family fortune remains "mind-boggling."