“You called me,” Dahl said. “What do you want?”
Milken walked silently into the men’s room, motioning for Dahl to follow. Inside, Milken turned on the tap water full blast and began washing his hands. With the water running, he leaned toward Dahl. “There haven’t been any subpoenas issued,” he said in a hushed tone, though he must have known otherwise. “Whatever you need to do, do it.” Dahl wasn’t even sure what a subpoena was, but he understood what Milken meant: if he had anything incriminating, destroy it.
Milken set about eliminating other potential evidence, too. On Monday, Terren Peizer was working at his desk when Milken asked him about the blue ledger book he had told him to keep on the arrangement with David Solomon. “Do you have that Solomon book?” Milken asked, and Peizer nodded. “Why don’t you give it to Lorraine Spurge?”
The next morning, Peizer gestured for Spurge to meet him in the kitchenette off the trading floor. He’d noticed that everyone seemed to be having conversations with the water running, so he turned on the kitchen faucet, assuming the offices were bugged. He handed Spurge the blue notebook.
“Michael asked me to give this to you,” he said. When Peizer got back to his desk, Milken asked, “Everything in that book had to do with Finsbury, right?” Peizer nodded yes.
The notebook was never seen again. Presumably, it was destroyed.
On Friday, after the Boesky news had hit the tape, Cary Maultasch booked a flight to Los Angeles and headed straight for Kennedy airport. He met with Milken the next day.
“You don’t know anything about the $5.3 million payment,” Milken flatly told him. Maultasch didn’t know what to say. Milken’s comment was a statement, not a question. But he did know about the payment. He asked Milken whether he’d been “careful” in his October meeting with Boesky at the Beverly Hills Hotel. Milken looked troubled. He said he thought he had been—but in retrospect, he wasn’t sure he’d been “careful enough.”
Milken scheduled a 4 A.M. meeting with Maultasch for the next day. When Maultasch arrived at the office, he was escorted into a conference room. He was alone with Milken in the room, and a guard stood at the door throughout the session. Milken had a stack of documents with him; Maultasch noticed the names of some of the Boesky stocks that had figured in the $5.3 million payment. Milken spoke only in hushed tones, and frequently wrote his questions on a small yellow pad rather than speak out loud. He erased them as soon as Maultasch answered. Milken spent the session quizzing Maultasch about what he knew about various stocks that figured in the Boesky conspiracy. When Maultasch wanted to discuss a specific stock, he used his pen to point at the stock’s name on the list; he never mentioned it out loud.
When he left after about half an hour, Maultasch handed his entry pass back to the guard at Drexel’s front entrance. The guard tore it up into small pieces. “Don’t worry,” the guard said. “You weren’t here.”
John Mulheren hadn’t believed it when a friend called from Canada with the tip that Boesky was going to plead. Then the news came over the tape. Mulheren froze. Even before the text had finished clattering out, he called his Canadian friend back. “Son of a bitch, you were right,” he said. “I still can’t believe it.” He called his wife Nancy, who’d taken the kids to Disney World. “You won’t believe this,” he said. “Ivan Boesky is a crook.”
“I’m not surprised,” Nancy said.
Mulheren’s mood soon shifted. He’d defended Boesky many times against his critics, and now Boesky had made him out to be a fool. He felt Boesky had used him, and Mulheren hated to be used. It upset him that there were people like Boesky. It shattered his view of human nature. On some level, he felt he’d never be the same again.
A few days later, his lawyer called. “Boesky’s lawyers called to say you should resign as a trustee for Boesky’s children,” his lawyer said. Mulheren flatly refused. “I’m not resigning unless Boesky calls me himself,” he said.
But Mulheren decided not to wait. He called Boesky. “I’ve heard from your lawyers,” Mulheren said. “But if there’s ever a time your kids are going to need a trustee, it’s now. I’m willing to do it.”
“You don’t want the litigation, the hassles,” Boesky said, sounding remote, emotionally detached. “You should withdraw.”
Mulheren felt betrayed, yet still willing to help. “This is going to be pretty difficult for you. You’ll need psychiatric help. You’ll need support.”
“Thanks, thanks for calling,” Boesky said, sounding eager to end the conversation. Finally Mulheren got angry.
“I’ll never forgive you,” Mulheren said, his voice rising. “I’ll never forgive you for what you’ve done to the business and everyone in it. It will never be the same. How could you do this? How could you?”
Boesky showed no emotion. “This is a highly technical business, and there are gray areas,” he said.
“Bullshit there are,” Mulheren angrily replied.
No one in the government was prepared for the media blitz that unfolded the week after the Boesky announcement. Charles Carberry, never comfortable with the press, was besieged. Two news organizations tried to storm past the guards at the U.S. attorney’s office. When Carberry declined to answer questions from a New York Post reporter, the reporter threatened to “blow your operation out of the water” unless he talked.
“Blow it,” Carberry said.
After midnight on the Saturday after the Boesky announcement, Carberry, suffering from a bout of insomnia, flipped on his television. There was Lynch on CBS, discussing the Boesky case. Everywhere he turned, he saw Boesky’s face: on the covers of Time and Newsweek, in all the major papers, on network television, even in the middle of the night. It was as though the dark side of the booming eighties had finally been personified.
But to the dismay of the government lawyers, the press barely credited them with capturing Boesky. Instead it bashed them for not extracting punishment enough. Overwhelmed by the sheer volume of calls, lacking large public-relations staffs, both Carberry and Lynch decided to talk only to a handful of reporters, which meant their version of events often went unreported.
The story continued to escalate. On Monday, November 17, The Wall Street Journal ran a front-page story identifying Drexel, Milken, Icahn, Posner, and Jefferies as being named in subpoenas. The next day, the paper rocked Wall Street with the news that the SEC had targeted Drexel in a formal order of investigation. The story named 12 companies that figured in the SEC’s probe. And one day later, the Journal reported that Drexel was the target of a criminal probe by a federal grand jury.
The stock market had shaken off the initial Boesky news with a 13-point drop on Monday. But Drexel and Milken were another matter. Traders knew that any threat to the Milken money machine was far more ominous than Boesky’s removal from the securities business. On Tuesday, the day the Journal revealed Drexel to be a target, the Dow Jones Industrial Average dropped 43 points. There was carnage among arbitrage stocks rumored to be takeover targets. Junk-bond prices plunged. Some Drexel clients pulled out of pending deals; Ronald Perelman abruptly abandoned his Drexel-backed hostile bid for Gillette, causing further market turmoil and anxiety. False rumors abounded; the most popular—that Milken had resigned—swept the floor of the stock exchange on an almost hourly basis.
Arbitrageurs, highly leveraged and flush with takeover stocks, were particularly hard-hit, and they blamed the government. The idea took root that, in allowing Boesky to liquidate many of his holdings prior to making a public announcement, the government had helped Boesky commit the greatest insider trade of his career. The notion spread like wildfire within the tightly linked network of arbs.
They began working their phones, pressing the theory upon reporters and anyone else who would listen. Among those hawking the theory were arbitrageurs Sandy Lewis, who had once been eager for Boesky’s downfall, and Robert Freeman at Goldman, Sachs, whose name also appeared on some of the Boesky subpoenas after Boesky told prosecutors his suspicions that F
reeman was trading on inside information.
Finally the arbs got their revenge. Just a week after the Boesky announcement, on November 21, The Washington Post ran a front-page story headlined, WALL STREET LAMBASTES SEC ACTION: AGENCY REPORTEDLY LET BOESKY SELL OFF STOCKS IN ADVANCE. For the SEC lawyers, the story was a nightmare.
“Wall Street reacted with outrage yesterday to reports that the Securities and Exchange Commission allowed stock speculator Ivan F. Boesky to sell more than $400 million of stocks of takeover targets before it announced the insider trading case against him that sent stock prices plunging,” the story began. “‘The SEC has unwittingly aided one of the largest insider trading scams in history,’ said David Nolan, a chief stock trader for Spear Leeds & Kellogg”—who, the Post reporters had no way of knowing, was soon to be under investigation himself. “The SEC,” the story continued, “aware that reports of Boesky’s trading set off a tumult on Wall Street, said it had no comment on the matter. . . . ”
The story was quickly picked up around the country by subscribers to the Washington Post News Service and by other papers, radio stations, and television reporters. Lynch, Sturc, and their colleagues were stunned. The idea had never occurred to them; now, with benefit of hindsight, they realized that it should have. They had allowed Boesky to wind down his position only to encourage market stability, and to guarantee that the government would get paid its $100 million. It had never occurred to them that it would be interpreted as helping Boesky trade in advance on his own inside information that he was going to plead guilty and settle SEC charges.
At the same time, Drexel and its sympathizers were pressing the view that Boesky was a traitor to Wall Street who had taped colleagues and served as a government stool pigeon. They hired a private investigator, Jules Kroll, to unearth damaging information about Boesky. They portrayed Boesky as a liar who couldn’t be trusted, and as a far greater criminal than the government had admitted.
On Monday, November 24, with government lawyers still reeling from the previous Friday’s Post story, The Wall Street Journal ran an article by Priscilla Ann Smith and Beatrice Garcia calculating that Boesky’s actual illegal profits totaled $203 million from the Dennis Levine trading alone, suggesting that the SEC had failed to penalize him adequately. “The disclosure seems likely to spur further criticism of the SEC, which already has been widely denounced for having allowed Mr. Boesky to raise money to meet his $100 million penalty by quietly disposing of $440 million of securities ahead of the November 14 announcement,” the story said.
This was unfair, since most of those profits had flowed to Boesky’s investors. As unwitting beneficiaries of Boesky’s wrongdoing, investors weren’t required to disgorge the profits. Boesky’s share of those profits was much smaller; his total assets at the time of his settlement were less than $200 million. The SEC could have pointed this out; instead, the story reported, “An SEC spokeswoman consistently declined to comment during phone calls late last week.” Thus, the thesis that Boesky had actually illegally earned far more than his penalty was picked up by other news outlets and found its way into the popular consciousness. Published estimates of his unlawful gains soon soared to $300 million.
In its continuing efforts to shift attention away from itself and onto the government, Drexel constantly pressed the theme that government lawyers were improperly leaking damaging information to the press, especially The Wall Street Journal. Drexel offered nothing to substantiate this allegation. Nonetheless, the “leak” thesis was widely reported.
The barrage of negative press quickly triggered a chorus of further criticism, most of it directed at the SEC. New York Congressman Charles Schumer attacked the agency. Congressman John Dingell, chairman of the powerful House Oversight and Investigations Committee, demanded a formal explanation and held public hearings. He even called Brian Campbell, the former Merrill Lynch broker who had handled Bank Leu’s trades, to testify. Dingell hailed Campbell as a “26-year-old whiz kid” who “cracked the code and piggybacked over 20 of Mr. Levine’s insider trades” at a time when the SEC, “despite all the wonder of the most modern technology . . . , could not make a case.” Lynch was enraged that Campbell, a suspect himself, would be praised at the SEC’s expense. Valuable government staff time was diverted from the investigation to calming Congress and responding to inquiries.
Worst of all was the loss of confidence within the agency itself. Shad, who had so looked forward to the Boesky press conference as the pinnacle of his career at the SEC, was devastated by the bad publicity. He seemed to blame Lynch. In Lynch’s view, the commission began to delay approving his requests for additional subpoenas, which were crucial for continuing the investigation. He felt he was in danger of being crippled.
On November 24, the day of the Journal article suggesting that Boesky’s illegal profits had vastly exceeded his penalty, Lynch called his demoralized troops into a conference room and tried to give them a pep talk. It wasn’t easy. He likened the experience to having discovered the Salk vaccine, and then being criticized for killing monkeys in experimental trials. Lynch himself had been deeply depressed. He wasn’t sleeping at night. He was thinking seriously of resigning.
But then he worried that no one else would pull through on the case, and the investigation would die. Knowing what he knew—the magnitude of the crime and the illegal profits, most of which were still going on—he couldn’t let that happen. So he summoned every bit of determination he had. He warned his staff that, in all likelihood, there would be more bad publicity. They were only at the beginning of what was going to be a long, hard-fought war.
“We are engaged in what may be the most important thing we will ever do in our lives,” he told his staff. “We have to fight and go on.”
11.
Martin Siegel walked into his bedroom and tossed his suit coat on the bed. It was a relief to be home for dinner at a decent hour. It was just 6:30 P.M., October 29, 1986. He walked to his desk, by a large window that looked out over Gracie Square park, and gazed outside.
Siegel felt better now than he had felt in months—since Dennis Levine’s arrest. The day after the news of Levine’s downfall and his panic in the airport phone booth, Siegel had gone to see his doctor. He hadn’t felt well, and thought he was suffering from too much stress. Deep down, Siegel had wanted the doctor to ask why he felt so bad, so anxious. He’d wanted to unburden himself. Instead, the doctor gave him a quick examination and brushed aside his complaints. “It’s just overwork,” he said. “You’ll be fine.”
Perhaps the doctor had been right. Siegel and his wife had spent the previous weekend with friends in Key Biscayne. Out on the ocean on a catamaran, in a stiff breeze and blazing sunshine, Siegel had enjoyed himself.
He smiled at the view outside his window. Children clambered over the playground equipment. But the calm was interrupted by the telephone’s ring. Siegel absentmindedly picked up the receiver, not waiting for Doris, the nanny, to answer. A man’s voice interrupted his reverie.
“Is this Marty Siegel?”
“Yes, it is,” Siegel replied.
“This is Bill.” There was silence. On Monday, Doris had told Siegel that someone named Bill had called, leaving no number. The same thing had happened yesterday. Both days, Siegel had returned at his usual hour, about 8 P.M. He hadn’t given the calls much thought; he didn’t know, offhand, who Bill was.
“Bill who?” Siegel asked.
“You know,” the voice said in an insinuating tone. “Bill.”
“No, I don’t know,” Siegel answered, getting edgy. Was this a crank call? There was another pause.
“Did you get my letter?” Bill asked.
“No.”
“You know, the letter I sent?”
Siegel didn’t know why he didn’t just hang up. “No, I don’t know anything about a letter. Why don’t you tell me?” There was another pause, then the voice dropped its bombshell.
“I mean, your relationship with the Russian.”
; Siegel closed his eyes, only to see an image of Boesky. He struggled to sound unconcerned. “I don’t know what you’re talking about,” he said calmly.
“I sent a letter to you,” Bill continued. “I told you in the letter, I want to meet with you.”
“I don’t know you,” Siegel said.
“Oh come on, don’t try to fool me,” Bill said, his tone becoming menacing. “I know.”
Siegel insisted again that he didn’t know what the man was talking about, and then Bill clearly had a moment of anxiety. “Is this the Marty Siegel who worked at Kidder, Peabody and now works at Drexel?”
“Yeah, it is,” Siegel said, deciding he’d had enough of this. “Don’t bother me anymore. If you do, I’ll go to the police.”
“I doubt that,” Bill replied sarcastically. Siegel hung up.
He reeled away from the desk, clenching his fists. He had feared his life would come to this. “So this is the way it all ends!” he cried aloud. His stomach heaved violently and he rushed toward the adjoining master bathroom.
Moments later, an anxious Jane Day came running into the room. She found her husband slumped over the toilet, vomiting. “Are you all right?” she asked anxiously as Siegel rose from the bathroom floor and tried to pull himself together.
“It must be a stomach virus,” he told her. “It came on so suddenly.”
As soon as he was alone again, he called Martin Lipton, the lawyer he felt closest to, both personally and professionally. Lipton’s secretary at Wachtell said that her boss was in Houston that night, but gave Siegel a number where he could be reached.
“Marty, I’m being blackmailed,” Siegel told Lipton, and gave him an outline of his conversation with the mysterious caller. Lipton urged Siegel to see Larry Pedowitz the next day. Pedowitz was the former chief of the criminal division at the U.S. attorney’s office who’d handled the Ilan Reich affair for Wachtell.
Den of Thieves Page 39