He settled on Jacksonville because Tampa/St. Petersburg was too sleepy; Miami too urban; tony Palm Beach would have sent the wrong message; and besides, he didn’t want to run into all his former colleagues from Wall Street and corporate America. Siegel liked Jacksonville’s healthy probusiness climate. He thought he could build a career there once he had put this ordeal behind him, assuming there ever would be such a time. And he found a beautiful house, a soaring, modern mansion directly on the beach in exclusive Ponte Vedra Beach. It had a three-car garage, a two-story living room with fireplace, and a third-floor turret with sweeping views above the master bedroom that would make a perfect home office. He also bought adjoining beachfront property, and had bedrooms for the children built on top of the garage. The house, the land, and improvements cost Siegel $3.5 million.
Siegel had no trouble selling the Connecticut house (for $3.5 million) and the apartment in the city, which was purchased by the first person who saw it (for $1.5 million). The Manhattan real estate market was still booming. Nearly all the proceeds were plowed into the Florida property, taxes, and legal fees. No one knew the Siegels were moving to Florida, but inevitably, word leaked out that they had sold their home; neighbors jumped to the conclusion that Siegel and Jane Day were getting a divorce. Siegel was infuriated that one of his neighbors called him, asking eagerly whether he’d be selling his jet ski.
Jane Day, Doris, Jessica, and the twins drove to Florida in mid-January. Siegel stayed in New York, trying to act as though nothing was happening. He wanted to be in Florida the day his family moved into the new house, but a heavy snow kept him from flying out of New York. “We’re in the bush,” Doris reported when Siegel reached them by phone at their new home. For six months, Scotty, one of the twins, would ask, “Where’s the doorman?” whenever they drove up to his new home.
Siegel was lonely in New York, but somehow he kept up appearances, showing up for work, returning phone calls. Drexel hadn’t pressed him for further explanations. The firm’s lawyers at Cahill Gordon & Reindel had periodically called Rakoff, asking repeatedly for assurances that Siegel knew of no wrongdoing at the firm, and, initially, pressing for more information about Siegel’s situation. Rakoff said only that there were “allegations” relating to Siegel’s pre-Drexel career, but he refused to elaborate. Drexel took pains not to alienate someone who might be cooperating with the government. In January, Siegel received his $3 million bonus, which he turned over to the SEC.
Everyone who knew Siegel realized that something was terribly wrong. He had lost much of his energy, his enthusiasm, his sparkle. He stopped attending management committee meetings at Drexel and he wasn’t generating any new deals. Both Siegel and Rakoff had been instructed by the government to lie if necessary to preserve his value as an undercover operative, but it rarely proved necessary.
“I hear you’re cooperating,” Joseph casually said one day. Siegel just shrugged and Joseph didn’t press.
John Crudele, a reporter for The New York Times, called Siegel and asked him if he was in trouble.
“No,” Siegel said.
At first Siegel resisted doing undercover work, but the government insisted, saying they wanted him to record DeNunzio and Tabor. They also told him they didn’t want him to have any contact with Freeman.
“We don’t want you getting anywhere near Freeman,” Doonan said. They wanted to proceed cautiously, see how Siegel performed, and gauge the reactions of those he contacted. They didn’t want to risk tipping Freeman.
One of the investigators’ ideas was to wire Siegel and send him into a meeting with Ralph DeNunzio. Siegel would steer the conversation to Kidder, Peabody’s arbitrage operations and the scheme with Freeman, trying to corroborate Siegel’s claim that DeNunzio knew about the arrangement. Since DeNunzio hadn’t traded himself, they needed more evidence; they wouldn’t want to charge DeNunzio based solely on Siegel’s word. But there were obvious problems. Siegel was reluctant. He didn’t see how he could plausibly meet with DeNunzio after having abandoned the firm for Drexel.
The solution, hatched by Doonan and Paschall, was to have Siegel call his good friend Peter Goodson, now Kidder, Peabody’s head of M&A. Siegel would tell Goodson that he wanted to come back to Kidder, Peabody because Drexel had been implicated in the Boesky scandal. He would ask Goodson to arrange a meeting with DeNunzio, which Siegel would attend wearing a wire. Siegel wasn’t happy; Siegel was the godfather to Goodson’s daughter. Goodson had been Siegel’s best friend at Kidder, Peabody. But the government gave him no choice.
With Doonan at his side, Siegel called Goodson’s home; he reached him on the third try. At first, Goodson seemed to swallow the story, and said he’d try to arrange the meeting. Ultimately, however, the gambit went nowhere. Goodson reported that DeNunzio had rejected the idea, and clearly hadn’t yet gotten over Siegel’s betrayal. DeNunzio’s message to Siegel: “You made your bed, now lie in it.”
The government showed scant interest in Wigton. He and Siegel had little in common in any event, and it was hard to come up with a plausible reason for Siegel to call him. Tabor, Wigton’s former partner in arbitrage, was another matter. Doonan immediately saw him as a potential target.
Tabor had left Kidder, Peabody soon after Siegel. Much like Levine, he had parlayed his slender arbitrage experience into an impressive title and salary. First he had gone to Chemical Bank, where he was named head of arbitrage. He was going to launch the bank’s new arbitrage department—but announcement of the move triggered a wave of bad publicity for Chemical. Clients were upset that the bank was going to try to profit from hostile takeovers. Chemical told Tabor he couldn’t invest in hostile deals, an absurd restraint for any true arbitrageur. As a result, Tabor quit Chemical and became an arbitrageur at Merrill Lynch.
The government believed Tabor to be especially vulnerable to the threat of prosecution. After news of Levine’s arrest broke, Tabor had called Siegel at Drexel. “Are we okay?” he’d asked, suggesting he knew Siegel could be a threat to him. Siegel had assured him he’d had no contact with Levine. Once at Merrill Lynch, Tabor had again called Siegel, who was then working for the Haft family in their Drexel-backed bid for Safeway. Merrill Lynch was representing the company in its defense. Tabor started giving Siegel what Tabor described as “Merrill Lynch’s thinking” about the defense, including confidential information about the scheduling of board meetings. He was treading very close to inside information, and Siegel believed he was hoping to establish a relationship. Siegel had never taken the bait.
When Siegel called Tabor and suggested they get together to “talk about the good old days” at Kidder, Peabody, Tabor seemed puzzled. He put Siegel off. So Siegel tried another tack. Citing the Boesky subpoenas at Drexel, he said he wanted to leave Drexel. “Maybe we could get together and set up our own thing,” he said. That didn’t bear fruit either, so Siegel called again. “Maybe I could talk to you about coming to Merrill Lynch.”
Tabor must have wondered about Siegel’s sudden desire to “get together.” Their paths had rarely crossed when they were working together at the same firm. Doonan monitored all the calls, usually from a phone extension in his office.
On Wednesday afternoon, February 11, 1987, about 4:30 P.M., Doonan and Paschall showed up at Siegel’s apartment, where he was still living pending the closing of its sale. That afternoon, Tabor had been fired from his arbitrage position at Merrill Lynch, an event which might weaken his resistance and increase his susceptibility to government cooperation. They were frustrated at Siegel’s lack of success as an undercover operative and were getting impatient. They were also nervous about a recent gossip column item in a New York newspaper; the New York Post’s Suzy had mentioned that Siegel might be in trouble in the Boesky investigation. They knew this would only fuel suspicions of Siegel. Time was running out.
“This is your last chance,” Doonan told Siegel sternly. “Get Tabor. Get a meeting with him.” Siegel picked up the phone and called Tabor at home, trying to sound
sympathetic to Tabor’s having been fired, then raising again the prospect of Siegel setting up some kind of business with Tabor. Siegel suggested they meet to discuss the possibility. This time Tabor flatly refused, saying he was “too busy.”
Doonan, monitoring the conversation from another phone, heard Siegel hang up, and then the click as Tabor hung up. But the line wasn’t dead. He heard a male voice in Tabor’s apartment. “Should I hang up now?” the voice asked. Doonan was annoyed. He realized immediately that Tabor had had his conversation monitored. He’d caught on.
“We’re going to have to do this our way now,” Doonan said ominously as he and Paschall stalked out of Siegel’s apartment.
Siegel realized what “our way” might mean. He knew now what Doonan was capable of. Several weeks after their early debriefings, Doonan had spoken to Siegel for the first time on the telephone. Doonan’s voice, isolated on the phone, had sounded eerily familiar. Suddenly Siegel had felt a chill. He had remembered. He was transported back to an autumn evening, to his bedroom; he was gazing at the playground, answering the phone.
“Is this Marty Siegel?” the voice had asked, ruining Siegel’s life. “Did you get my letter?”
Doonan was “Bill.”
About two weeks after the Boesky announcement, Milken again summoned Jim Dahl. Dahl still didn’t really understand what was unfolding. All he knew was that, since their meeting in the men’s room, Milken had been spending most of his time holed up with his brother Lowell.
“You need to get a lawyer,” Milken said in a lowered voice. Dahl hadn’t been subpoenaed, but given his importance in the high-yield area, and his direct dealings with Boesky, it was probably only a matter of time before he would be. Milken strongly urged Dahl to hire Edward Bennett Williams, the famed Washington criminal lawyer. Dahl didn’t have to worry about Williams’s fees—they’d be paid by Drexel, as would Milken’s. Milken explained that he himself had retained Williams and assured Dahl he didn’t need to worry. “The only one they want is me,” he said.
Dahl wasn’t sure it made sense for him to have the same lawyer as Milken. Wouldn’t Milken’s interests come first? He was still mulling things over the next week when Williams and a young lawyer from Williams & Connolly, Robert Litt, arrived in Beverly Hills for interviews with potential witnesses.
Dahl was dazzled by the crusty veteran of so many highly publicized battles. Williams was among the most famous of America’s criminal defense lawyers, a Washington legend, unrivaled in criminal cases with political overtones. He had defended Senator Joseph McCarthy, Teamster boss Jimmy Hoffa, Lyndon Johnson protégé Bobby Baker, financier Robert Vesco, former Treasury Secretary John Connally, and former Congressman Adam Clayton Powell. As the owner of the Baltimore Orioles baseball team, and former part owner of the Washington Redskins, Williams understood business. He was also suffering from cancer.
“Listen, Jim, it’s gonna pass,” Williams said in his throaty voice. “All we have to do is hang together and fight this fuckin’ thing. These government lawyers are no match for us.” Williams continued in this vein, sprinkling his remarks with profanity. He and Litt assured Dahl that he wasn’t a subject or target of the investigation; he was just a bystander, a potential witness to hurt Milken. “We’ll beat these sons of bitches,” Williams said, “but we have to remain on the inside of the tent pissing out.”
It was crucial for Milken to keep potential witnesses under his control. Boesky could always be dismissed as an admitted liar and felon; his testimony alone would never convict Milken. Milken and his lawyers knew that, and so did prosecutors. A member of Milken’s own team, however, could inflict a fatal wound, if any defected. That could not be allowed to happen.
Milken himself would never testify. Not for a minute did he consider pleading guilty, telling the truth, cooperating. Unlike Boesky and Levine, he had no one more important to turn in, and less to offer the government in return for leniency. He was the pinnacle, the most important person in American finance. There was no “bigger fish.” And unlike Siegel, he apparently felt no remorse. He’d beaten back SEC inquiries in the past, and he seemed confident he’d defeat this one.
Unlike Pitt and Rakoff, Williams made no attempt whatsoever to get the truth from Milken, not in his initial interviews or at any time thereafter. Williams didn’t want to know. Williams often said he had a cardinal rule: “Don’t ask a question to which you don’t already know the answer.”
Milken had hired Williams almost immediately after the Boesky announcement on November 14, and seemed to treat him as an authority figure, to hold him in a kind of awe he displayed toward no one else involved in the investigation. He knew him through Drexel client Marvin Davis, the Denver oilman who, with the help of Milken’s junk bonds, had transformed himself into a Hollywood tycoon and owner of 20th Century–Fox. Williams had long represented Davis, as well as Milken client Victor Posner.
Williams’s partner, Litt, had been surprised when Milken hired Williams & Connolly. Litt knew Carberry from his own days in the Manhattan U.S. attorney’s office, and had called Carberry earlier to congratulate him on the Boesky coup. Then, on the Sunday after the Friday announcement of Boesky’s fall, Williams had called. “We’re representing Milken,” Williams had said gruffly. Litt then called Carberry to apologize for his earlier call, saying he hadn’t realized Williams & Connolly would be involved.
The same weekend, Milken had also hired Arthur Liman and Martin Flumenbaum, the partners at Paul, Weiss, Rifkind, Wharton & Garrison who had also represented Dennis Levine. Despite the Levine case, Liman is known more as a corporate litigator than as a criminal defense lawyer. He represented Pennzoil in its monumental and successful fight against Texaco, and served as counsel for the Senate’s Iran-Contra investigation.
Milken also knew Liman; Paul, Weiss had become the law firm of choice for many of Milken’s clients, such as Nelson Peltz of Triangle Industries and Ronald Perelman, who took over Revlon. Milken realized that Liman understood securities law and the world of hostile takeovers and junk-bond financing.
Williams insisted that he be lead counsel, and Milken agreed. Liman and Flumenbaum would be closely involved. What Liman sacrificed in ego, he and his firm would more than make up for in billings, since Paul, Weiss would contribute the bulk of the manpower, handling the voluminous, time-consuming, and often tedious SEC demands. Williams said from the beginning, “I don’t give a shit about the SEC.” He only wanted a small handful of lawyers from Williams and Connolly working on the matter. That was his style.
Paul, Weiss’s style was to overwhelm. Known for its scorched-earth litigation tactics, Paul, Weiss could combat the government with the vast manpower of one of the country’s largest firms. Drexel also had an army of lawyers. Drexel had retained its usual corporate counsel, Cahill Gordon & Reindel, another huge New York firm, as well as Peter Fleming, a noted criminal lawyer who had defended Hitachi in a well-known government sting operation.
The single most important lawyer in the Milken defense ranks, however, was probably the most obscure: Richard Sandler, Lowell Milken’s boyhood friend who’d become the Milken family lawyer. He had been working from offices within Drexel’s own Beverly Hills office building. Though Sandler had been closer to Lowell, he had always seemed to worship Mike Milken, on whom his practice and livelihood depended. His zeal went beyond the financial relationship; it was as though his own identity had fused with Milken’s.
Sandler, unprepossessing but energetic, usually dismissed contemptuously by traders and salesmen in the office as “the real estate lawyer,” was suddenly the most important person in Milken’s orbit. He became the nerve center for information about the investigation, constantly in contact with potential witnesses and other lawyers. He immersed himself in the facts of the case—or, more precisely, the facts of the case favorable to Milken’s declarations of innocence. He became nearly inseparable from Milken, traveling with him almost everywhere he went. Sandler’s conference room seemed to become an oasi
s for Milken away from the trading desk, as he spent more and more time there. Sandler also oversaw construction of a second-floor conference room in the Beverly Hills office. Dubbed “the cone of silence,” the soundproof room was swept for listening devices every week, and used for strategy discussions.
Not surprisingly, the Milken and Drexel lawyers agreed to cooperate, and signed a formal agreement known as a joint defense agreement. Such an agreement extends the attorney-client privilege to all the lawyers in the agreement, and provides for full disclosure of information within their ranks. Despite the agreement, however, the Milken camp didn’t share everything with Drexel. From the outset, Williams told Milken and his lawyers that Drexel would eventually capitulate.
A securities firm, Williams predicted, couldn’t survive in the shadow of prolonged criminal and SEC investigations. Drexel would become the enemy and was likely to give the government everything it had gleaned from Milken in the course of the investigation. None of this, of course, was communicated to Drexel officials or their lawyers.
Milken’s lawyers had little respect for Drexel’s. At an early meeting of all the lawyers at Peter Fleming’s firm in New York, Thomas Curnin, Drexel’s lead counsel, was leading a discussion when Liman arrived late. Liman began talking as he came through the door, interrupting Curnin, imperiously taking charge. Curnin smoldered in silence.
The Milken team also sometimes seemed an uneasy alliance. Despite the earlier agreement that Williams would be lead counsel, Paul, Weiss vied with Williams & Connolly for dominance. Early in the case, Williams learned that Flumenbaum had made what seemed an innocuous call to Carberry to discuss a subpoena matter. Williams, who deemed the U.S. attorney’s office to be his turf and had a precise plan for communicating with prosecutors, hit the ceiling. He called Sandler and screamed, “If that fat little shit steps out of line again, I’ll squash him like a bug. If he were at my firm, he’d be fired.” Annoyed by what they deemed Flumenbaum’s arrogant manner, the non-Paul, Weiss lawyers began to refer routinely to Flumenbaum as “the FLS.”
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