“What did Boesky say to you,” one of the lawyers asked him. Mooradian looked anxiously at the two women lawyers in the room.
“Did he say ‘fuck?’” the lawyer continued.
“Do you really want to know?” Mooradian asked apprehensively, before deciding he wouldn’t be blamed for offending anyone. “He said, ‘You stupid fucking bastard,’ over and over,” Mooradian stated.
Mooradian had destroyed, on Boesky’s orders, what was becoming the single most important document in the investigation, the lengthy reconciliation of accounts leading to the $5.3 million payment. But he continued his effort to reconstruct the ledgers that began when Boesky changed his mind, working with Maria Termine and the scraps of underlying records he’d found in his files. He managed to re-create a reasonable facsimile.
Mooradian soon became an informal consultant for lawyers working on the case. Most of them knew almost nothing about financial markets and the workings of the securities industry, not even such basics as selling short or puts and calls—let alone the complex and sophisticated strategies employed by Boesky and Milken to carry out their schemes. They knew little about accounting. Mooradian spent hours teaching the lawyers, then poring over trading records showing how the data corroborated various strategies. He became a popular figure around the office, refreshingly down-to-earth, eager to please. Mooradian himself gradually came to understand and sympathize with Boesky’s decision to cooperate. He realized that when your own life was on the line, you had a different view of cooperation. And he saw that it would have been fruitless for Boesky to lie. Too many other possible witnesses, including himself, knew the truth.
Buttressed by Mooradian’s disclosures, the government soon gained the cooperation, such as it was, of Mooradian’s counterpart at Drexel, Charles Thurnher, as well as that of Donald Balser. Both men were represented by Seymour Glanzer, a criminal lawyer in Washington recommended by Peter Fleming and Arthur Liman. At the outset, Glanzer had indicated his clients would invoke the Fifth Amendment if questioned.
Thurnher was an accountant by training, and faced possible charges for his role in the scheme. He was more valuable to the government, however, as someone with no ties or loyalty to Boesky, who could corroborate the arbitrageur’s allegations. Thurnher had simply been carrying out Milken’s orders. Balser’s involvement had been even more minimal; he had been a mere bystander. When Drexel had needed to provide written justification for the $5.3 million, he had been dragooned by Lowell to sign the letter saying it was an investment banking fee.
Carberry felt that he could live with the prospect of immunity, and he granted it to both men; he had to start somewhere. The grant of immunity required both Thurnher and Balser to answer questions truthfully; they couldn’t invoke the right against self-incrimination, since nothing they said could be used against them.
Still, to call this process cooperation would be an overstatement. In conversations with the Milken team, Glanzer made much of the fact that Thurnher’s and Balser’s testimony was being compelled by the government; they hadn’t offered to implicate anyone. In sharp contrast to Mooradian, Thurnher volunteered little. Like Boesky, Milken had kept his employees largely in the dark. Milken had never told Thurnher why he was having him do various things, so he was of little use in figuring out Milken’s motives and state of mind. Thurnher testified at one point that Milken hadn’t even asked him to keep the list; on another occasion, he said Milken had described the list as “all a bunch of bullshit.”
Thurnher walked a tightrope, trying to say as little as possible without lying. On more than one occasion, government prosecutors had to threaten him with a perjury indictment. Sandler was in constant contact with Glanzer, who boasted that Thurnher was doing nothing to help the government’s case.
The government saw Thurnher’s testimony differently, however. He may have been an unwilling witness, but he admitted that he had destroyed the computer disks used to compute the $5.3 million payment. While he didn’t say he had done so as the result of direct orders from Milken, he made clear that he’d gotten the message to do so from Milken. He confirmed the dealings with Mooradian. Significantly, Thurnher testified that Milken personally dictated the amounts allocating portions of the $5.3 million fee to investment banking and high-yield—on the very document relied upon so heavily by Milken’s lawyers in their efforts to persuade Drexel that Milken’s version of the payment was correct. Thus, Thurnher couldn’t say from his own knowledge that the allocation accurately reflected the purpose of the payment.
This was crucial information that might have affected Drexel’s view of the evidence. But when Curnin met with Thurnher to find out what he’d told the government, Glanzer wouldn’t let Thurnher answer most of his questions. Curnin was left with reassurances from the Milken camp that Thurnher hadn’t done them any harm.
The pressures on Thurnher to avoid true cooperation were underscored by a joke that swept Drexel as soon as news leaked that Thurnher might be talking to the government. “Who’s the highest-paid guy at Drexel? Thurnher’s food taster.”
Even though Thurnher’s testimony didn’t seem to be hurting Milken or Drexel, the continuing silence from those in Beverly Hills directly knowledgeable about the events covered by the subpoena began to worry Curnin. Then, on April 28, an article appeared in The Wall Street Journal focusing on the $5.3 million payment. In considerable detail, the article described how the payment was calculated, and reported that the invoice “was hastily produced after the payment was already made and only because Mr. Boesky’s auditors questioned the lack of documentation for such a large payment.” Both Curnin and Joseph were upset that reporters appeared to know more about the government’s case than they did. They worried that the article might be correct.
No such doubts permeated the Milken camp, which heaped scorn on the press both within Drexel and to anyone else who would listen. Williams increasingly found himself to be the voice of caution, even as his hold over the case began to slip. In early 1987, Williams had surgery for cancer, which weakened him visibly. He didn’t feel the case was at a point where any kind of negotiations should be considered, and he knew Milken wouldn’t even entertain the possibility; but he knew it was prudent to keep lines of communication open at the U.S. attorney’s office. As he’d confided in Litt, the government’s case was likely to get stronger, not weaker, as time passed.
Not long after his surgery, Williams arranged a meeting in New York with Carberry, Howard Wilson, the chief of the criminal division, and another prosecutor working on the case. Williams came alone, without anyone else from the Milken defense team. After discussing the limited progress in the case, and after Carberry reiterated his reluctance to say much about an investigation that was still in the early phases, Williams finally asked, “How long is this going to take?”
Carberry estimated two years before an indictment. Williams paused, looking wistful. “I’ll be dead by then,” he said. “Can’t you go any faster?”
After leaving Siegel’s apartment on Wednesday afternoon, February 11, 1987, Doonan rushed to St. Andrews Plaza for a meeting with Carberry and Neil Cartusciello, the assistant U.S. attorney Carberry had assigned to the cases growing out of the Siegel investigation. With Tabor apparently tipped off to the existence of an undercover operation, time was running out. Doonan wanted to move against Freeman, Wigton, and Tabor the very next day, and he wanted Siegel to enter his plea that Friday. Carberry agreed.
Carberry thought the three suspects should be arrested, rather than subpoenaed (as Siegel and Boesky had been) or allowed to come in on their own. Freeman, already subpoenaed earlier as part of the Boesky investigation, had rebuffed any notion of cooperation, even though Carberry had heard from another lawyer that Freeman had been a “nervous wreck.” Tabor also seemed vulnerable, having just been fired from Merrill Lynch. Carberry thought the pressure of a public arrest might lead one or more of them to capitulate and confess. He’d concluded that Wall Street types weren’t strong i
n a criminal sense. They cared too much about respectability.
Carberry and Cartusciello went upstairs for a meeting with Giuliani and Wilson. Carberry believed that Freeman had engaged in a straightforward, illegal exchange of inside information. That he’d traded for information rather than cash made his offense even more destructive of market integrity. As for Wigton and Tabor, Siegel hadn’t claimed that they were privy to his scheme with Freeman. But Siegel had mentioned Freeman as a source at least once, and Carberry believed they had to have known that Siegel had a source in Goldman, Sachs. It was patently obvious from the trading patterns of Kidder, Peabody’s arbitrage department.
“Let’s arrest them,” Carberry said. Giuliani agreed without any hesitation. There wasn’t any discussion of the possible public reaction. Arrests were routine. They got the necessary arrest warrants, based on an affidavit signed by Doonan, taken from Paschall’s notes of the Siegel debriefings. Then Doonan rushed off to Tabor’s Upper East Side apartment building.
Matters began to go awry almost from the outset. Tabor was handcuffed and frisked in his building lobby, allowed to go back to his apartment for his coat, and then lodged in the Metropolitan Correction Center that night. The prosecutors hoped he might decide to confess and cooperate, but Tabor didn’t cave in. Carberry may have misjudged the emotional makeup and loyalties of many on Wall Street. In their willingness to confess and cooperate, Boesky and Siegel were the exception, not the rule. Wall Street remains a small, closed world fueled by money, mutual favors, and strong loyalties. And perhaps Tabor had never figured out Siegel’s relationship with Freeman, and had nothing to confess. If anything, his night in the MCC seemed to make him more defiant than he’d been the day before.
The next morning, with snow flurries whirling through the gray canyons of the financial district, Doonan and two other postal inspectors arrived at Goldman, Sachs’s headquarters on Broad Street. “We have a warrant for the arrest of Robert Freeman,” Doonan told a member of the building’s security staff, and the shocked guard took them upstairs without protest.
Freeman’s 29th-floor office was glass-enclosed, just off Goldman’s large trading floor. Freeman stood up, looking startled, as the brigade entered his office. He had been busy trying to clear up some pending matters; he was scheduled to leave that afternoon to spend the long President’s Day weekend skiing in the Rockies with his family.
“I have a federal warrant for your arrest,” Doonan told him. “I’m now placing you under arrest.” On Doonan’s instructions, Freeman leaned forward and put his hands on his desk. Doonan frisked him, and removed everything in his pockets. Freeman said nothing. The incident created something of a commotion on the trading floor, as traders craned their necks to see what was going on.
Freeman asked to use the phone and called an in-house Goldman lawyer, who hurried into the office. The lawyer called Larry Pedowitz, who had been representing the firm since Freeman was named in the Boesky-related subpoena.
Pedowitz, who’d once worked with Doonan at the U.S. attorney’s office, listened as Doonan explained the charges. He said he had a search warrant for Freeman’s office and its vicinity. Then the two postal inspectors escorted Freeman to the elevators; once they reached the building’s lobby, they handcuffed him. Doonan stayed behind, roping off a large area around Freeman’s office, and began to sift through desk drawers and filing cabinets, piling documents into cartons.
As the agents hustled Freeman out of Goldman’s headquarters, another federal brigade arrived at Kidder, Peabody’s offices on Hanover Square. Richard Wigton looked up from his desk and saw a receptionist standing at his 18th-floor office door. “There’s a Mr. Moreno here to see you,” she said.
Wigton glanced at his calendar. He didn’t see any entry for the morning of February 12. With the trading day in full swing, Wigton wasn’t about to abandon his post. “I don’t have time right now,” he told the receptionist. “He doesn’t have an appointment.” Wigton wondered if this was a job applicant. College kids were so eager to work at investment banks that some of them were going around Wall Street, knocking on doors. Wigton went back to his work.
A few minutes later he looked up and saw that the receptionist had returned. She looked anxious. “They intend to see you this very moment,” she said. “They said no ifs, ands, or buts about it.” Wigton thought this was rude and highly unorthodox, but he decided to go out to the lobby to see what this meant.
He strode into the lobby near the elevators, the receptionist a few steps behind him. Two men were waiting. Suddenly they pulled out papers identifying them as U.S. postal inspectors and stated, “You’re under arrest.” Wigton stopped in his tracks. Was this a prank? One of them grabbed him by the arm, turned him around, then shoved him hard toward the wall. He caught himself. The postal inspectors quickly frisked him, then pulled his hands behind his back. They snapped a pair of handcuffs on his wrists.
The agents then led Wigton back to his office, crossing the trading floor in full view of the firm’s employees. One of the traders, spotting the procession, immediately called John Roche, who came rushing into Wigton’s office. “I’m the president of this company,” Roche said with some indignation. “What’s going on here?” The agents explained that they had just arrested Wigton on securities fraud charges. Wigton, still in shock, stood uncomprehending. “Hold on a minute,” Roche told the agents, and picked up the phone to call Kidder, Peabody’s counsel at Sullivan & Cromwell, Marvin Schwartz. “We’ll get you the best criminal lawyer available,” Roche assured Wigton.
The agents unlocked the cuffs to allow Wigton to don his suit jacket and overcoat. He called his wife, Cynthia. “Will you be home for dinner?” she asked anxiously.
“I can’t say,” he gravely replied. Then the agents snapped the handcuffs back into place.
Most of the traders had now dropped their phones and were following the action in Wigton’s office, some standing for a better view. Then the agents again led Wigton onto the trading floor. As he walked toward the elevator, with agents on either side of him, Wigton began to weep. With his hands manacled, he couldn’t brush away the tears.
After spending about an hour at the postal inspectors’ offices in lower Manhattan where Siegel had been interrogated, Wigton and Freeman were taken separately to the federal courthouse for their arraignment, where they met Tabor. Tabor looked disheveled; he was wearing a white open-necked polo shirt, sneakers, and khaki trousers.
It was the first time the three men had ever been together. Freeman, at the pinnacle of the arbitrage world, had never bothered to return Wigton’s calls.
“Hello,” Wigton said.
“Hi, how are you?” Freeman answered. They all seemed at a loss for words.
The three men had lawyers inclined to urge them to fight. Soon after the Boesky announcement, in anticipation of the possibility that Kidder, Peabody would be drawn into the scandal, the firm’s lawyers at Sullivan & Cromwell had retained Stanley Arkin, a noted criminal lawyer it often used for its criminal matters. Wigton was now handed over to Arkin, who, by temperament, prefers to fight the government. He, in turn, had recommended another lawyer, Andrew Lawler, for Tabor. As in the Milken case, the economic relationships among the lawyers meant that a core defense team—in this case dominated by Sullivan & Cromwell—would have great influence over the course of events. Kidder, Peabody would be paying all the legal fees. And Sullivan & Cromwell had been Kidder, Peabody’s counsel throughout the events now being alleged to have been criminal. Pedowitz, representing Goldman, Sachs, recommended that Freeman retain Paul Curran, a former U.S. attorney and partner at Kaye, Scholer, Fierman, Hays & Handler. Wachtell, Lipton, Pedowitz’s firm, had already done an internal investigation for Goldman, Sachs after Freeman’s name had appeared on subpoenas flowing out of the Boesky plea agreement. Those subpoenas hadn’t caused undue concern within Goldman, and the Wachtell investigation exonerated Freeman and his firm, finding no evidence of any wrongdoing.
By the tim
e of the arraignment, at about noon on Thursday, the basement courtroom was only half-filled, mostly with reporters. In some ways, the news of the arrests was an even bigger bombshell than the Drexel and Milken allegations. While none of the men involved rivaled Milken in power and influence, their firms—Kidder, Peabody and Goldman, Sachs—represented the pinnacle of the Wall Street establishment. While Kidder, Peabody was known to have been struggling, Goldman, Sachs was probably, overall, the dominant firm on Wall Street. This was not a case involving upstart, greedy newcomers. Allegations of insider trading at this level had seemed almost unthinkable.
The manner of the arrests also added fuel to the fire. Unlike Levine, the arbitrageurs had been arrested in full view of other witnesses—Tabor in his apartment lobby, and Wigton and Freeman at their firms—ensuring that word of the arrests would course through Wall Street and the media. It did, including wild reports that the usually meek Wigton had decked one of the federal agents and had to be subdued to be handcuffed. Many on Wall Street were indignant that their colleagues were being treated like common criminals. There were repeated allegations that Giuliani, who had always courted publicity and was rumored to be eyeing a bid for public office, had tried to sensationalize the process for his own ends. Even though it was Carberry who had proposed the arrests, these charges fell on receptive ears.
By now, Wall Street was terrified. Many had been, to put it mildly, indiscreet with confidential information. Even before the latest rounds of arrests, many arbitrageurs and traders had been afraid of where the investigation might lead. They were horrified that the criminal provisions of the securities laws—even aspects they had long dismissed as technicalities, like the prohibition against “parking”—might actually be enforced. With two of the country’s most prominent firms now implicated, many concluded that the investigation had gotten out of hand. It was threatening everyone’s well-being.
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