Regan told colleagues that he was innocent, that he was being pressured only because he knew Freeman and Milken, and that his case was “too complicated” to be understood by a jury. He was confident he’d be acquitted. He refused to consider cooperating; he wasn’t about to turn against a Dartmouth roommate like Freeman. At Drexel’s 1988 Predators’ Ball, Regan was a minor celebrity, shaking hands and accepting congratulations from Milken loyalists thrilled at his defiance in the face of government pressure. The threat of using RICO against Princeton-Newport was eagerly seized upon by Milken’s public-relations team as a new theme of government heavy-handedness that could be used to influence public opinion against the prosecutors.
Newberg and Maultasch continued to invoke the Fifth Amendment, refusing to cooperate or testify. Lisa Jones, however, did testify before finally invoking the Fifth Amendment. Because she was so low on the ladder of responsibility, the prosecutors opted immediately to grant Jones immunity, forcing her to testify. They assured her that as long as she told the truth, she couldn’t be prosecuted for any other crime. It was the same tactic that had worked so well with Will Hale.
Jones’s only risk was perjury. Yet, despite assurances from the prosecutors, and despite her earlier admission of parking to Doonan, she flatly denied the existence of various trades, denied ever discussing “parking” or related fees with Newberg or anyone, and denied keeping records of parked securities. (Jones did not know that the government had tapes of her Princeton-Newport conversations.) During a break in her testimony, the prosecutor handling her questioning, Mark Hanson, warned her lawyer that she was committing perjury. He happened to be from Cahill Gordon, the firm representing Drexel. As concerns mounted, Joseph and the Cahill lawyers urged her to tell the truth. On February 23, she received a letter warning her that she was likely to be indicted for perjury. At this point Drexel hired another lawyer for her. Blinded by loyalty to Newberg and Milken, she still refused to come clean.
Like Jones, the rest of the Drexel ranks held firm in the face of some of the strongest weapons in the prosecutor’s arsenal. In part this was a measure of the extraordinary loyalty generated by Milken among his employees. But in all likelihood, it also reflected their shrewd calculation of their financial interests. In January of that year, when Milken had his compensation meetings, potential witnesses had discovered that their compensation was expected to soar. Dahl, for example, had been promised a mere $10 million in 1986—the best year by far for high-yield department profits; now he was allocated an astounding $35 million.
Despite her obvious perjury, Drexel kept Jones on the payroll, paid all her legal expenses, and gave her a generous bonus. Even Joseph worried that Milken’s 1988 bonus payments to potential witnesses within the high-yield department might make it look like Drexel was buying their cooperation; but he decided that under Drexel’s compensation system, it was Milken’s money to distribute, as it had been in prior years, and there wasn’t any reason for him to interfere.
As of mid-1988, the U.S. attorney’s investigation had all but stalled, even as pressure mounted from the SEC and elsewhere. Giuliani was quietly eyeing the possibility of running for political office—probably mayor of New York, for which an election would be held in November 1989, little more than a year away. To mount a campaign, he would have to resign from the U.S. attorney’s office by the end of 1988 or soon after; the political advantages of guilty pleas or at least solid indictments against Freeman, Wigton and Tabor, Drexel, and Milken were obvious.
There were also the cooperating witnesses to worry about. Siegel, exiled in Florida, unemployable, with nothing to do but wait with the specter of a prison sentence hanging over him, begged to be sentenced, as Boesky had been. But Baird kept promising that a new indictment of Freeman was all but imminent, and that Siegel’s testimony would stand him in good stead at his sentencing. Baird didn’t want to lose the leverage over Siegel that the government had sacrificed with Boesky.
Baird also kept insisting to Lynch at the SEC that his investigation needed just a little more time. He and Giuliani were anxious to prevent the SEC from going forward. They feared that the Milken and Drexel legal teams would use the court process to discover the government’s evidence, zeroing in immediately on the Boesky testimony. Premature disclosure of investigative matters, they felt, could be devastating to the government’s continuing investigation. Baird and Giuliani resisted the pressures to rush. They hadn’t yet tried the tactic of offering immunity to top members of the Milken entourage. Without promises of genuine cooperation in advance, they didn’t want to risk another Lisa Jones experience. And they were wary of a backlash should they inadvertently immunize someone who later turned out to be a major criminal. Instead, they continued to pressure witnesses low on the ladder that led to Milken.
Baird and Giuliani repeated their arguments to Lynch, as pressure on him from the commission and Congress mounted. Drexel kept pressing the point that it wasn’t being given a chance to defend itself in court. Lynch countered Giuliani’s arguments, saying the the U.S. attorney could always obtain protective orders for information it didn’t want to disclose in discovery, and that the delays only seemed to be solidifying Drexel’s ability to resist and the perception that the government didn’t have a strong case. Lynch also continued to be angered by Liman, especially by secondhand reports that Liman was lobbying Giuliani to block the SEC’s compliant, claiming that Lynch and Sturc were “wild” and had to be restrained. But Lynch kept backing down, agreeing to give Giuliani and Baird another month. Then the month would pass, with little progress evident, and the arguments would start again. Finally, in late July 1988, Lynch called Giuliani to announce that the SEC had decided to go forward without Giuliani’s consent, and the whole government investigation came close to self-destructing.
“You can’t do this,” Giuliani yelled angrily into the phone.
“We’re going to,” Lynch insisted.
Giuliani hated defiance, and the impetuous side of his nature took over. “If you file, we’ll throw our lot in with the defendants,” Giuliani threatened. “We’ll support a motion to dismiss your action.”
Lynch could scarcely believe what he was hearing. Could Giuliani really be willing to join Drexel and Milken in urging a court to dismiss their case? Lynch had delivered Levine and Boesky to Giuliani, and had taken the heat on the Boesky settlement while helping to launch Giuliani’s reputation for cracking down on Wall Street. How could Giuliani turn on him now? Lynch slammed down the receiver.
In the face of such a dire threat, the SEC decided to back down, agreeing that Giuliani could have another month. They decided they couldn’t do anything that might provoke Giuliani into hurting their case against Drexel and Milken. Giuliani calmed down and tried, in his own way, to apologize to Lynch. He told Lynch that he had misunderstood, that Giuliani would never throw in his lot with the Milken camp against the SEC. Relations were soon restored between the prosecutors and the SEC staff. But Lynch would never forget Giuliani’s threat.
As the government’s effort floundered, Milken stepped up his counterattack. In March 1988, at Arthur Liman’s suggestion, he hired an aggressive young PR firm: Robinson, Lake, Lerer & Montgomery. Linda Gosden Robinson, the firm’s head, had become the PR embodiment of the eighties. The Southern California–bred daughter of Freeman Gosden, the actor who played Amos in “Amos ’n’ Andy,” Robinson had bounced on the knee of actor Ronald Reagan as a young girl. An attractive blond who worked as an acupuncture therapist in the seventies, she had helped in the 1980 Reagan campaign and had then worked for Transportation Secretary Drew Lewis. When Lewis moved to Warner Amex Cable, she had gone with him, becoming close to the joint venture’s chief executives: American Express chairman Jim Robinson and Warner Communications chairman Steve Ross. She had ultimately married Robinson, and moved the offices of her own PR firm into Warner’s New York headquarters building. She knew Liman through Ross, a Liman client, and he saw her work firsthand when she represented Texaco
in its long-running battle with Pennzoil, another Liman client. In her mid-30s, she was already a force to be reckoned with, both as an appendage to powerful men—her husband, Liman, Ross—and in her own right.
Robinson brought Republican-style “attack” and negative campaign tactics to corporate public relations. She is smart, bold, and tough, a worthy adversary for even the best reporters. While she can easily turn on the charm, those who cross her, especially if they happen to be lower than she on the social and power scale, find her difficult, imperious, and unpleasant. She required two secretaries to keep track of her crowded social and business calendars, including coordinating the helicopter rides for her and her husband to their Connecticut home, maintaining fresh flowers in their luxury co-op in Manhattan’s Museum Tower, reminding her of birthdays of celebrity friends like Frank Sinatra, or tending to the needs of her three King Charles spaniels (named for characters in “Amos ’n’ Andy”) or her numerous horses. She’d often simply take the latest Bergdorf Goodman catalogue, circle what she wanted, and send one of her secretaries to do the shopping. Turnover among her employees was high.
Edward Bennett Williams had been adamantly opposed to hiring her—or any other PR counsel, for that matter. He was openly contemptuous of “flacks,” and his own approach to public relations had always served him well. He usually shunned the press. He was even rude if necessary. He rarely talked to reporters, either on his own behalf or for a client. But Liman twisted his arm, and ultimately Milken himself insisted that Robinson be hired.
Robinson flew down to Washington to meet with Williams. He brought her into a conference room at Williams & Connolly and sat her at one end of the long table while he sat at the opposite end. Williams told her bluntly that he considered PR a waste of time and money. He supposed it wouldn’t hurt for her to handle questions about Milken and Drexel’s business. But then, despite his illness, he glowered and jabbed his finger in her direction. “Stay goddamn away from the criminal case,” he shouted. Robinson sputtered and protested, but Williams wouldn’t budge. She left clearly shaken by the encounter.
Still, she had a foot in the door. Soon a team from Robinson, Lake, led by Robinson’s chief partner, Kenneth Lerer, who had worked for her at Warner Amex, arrived in Beverly Hills to plot strategy. Robinson had previously confined her work to respectable corporate clients. Lerer had run the Senate campaign of former Miss America Bess Myerson, who later became embroiled in the New York City government “Bess Mess” affair, in which Myerson was acquitted of improperly trying to influence the judge handling the divorce of her paramour.
Lerer and his colleagues sat down with Milken in Beverly Hills and asked the financier to list his principal achievements, things that could be used to “position” him with the American public. Milken took a legal pad and red felt pen. He began to write, starting with the first grade. He mentioned winning a dance contest in fifth grade. He continued in that vein, climaxing with his being voted most popular, and being elected prom king in high school. Then he stopped. He hadn’t written a word about Drexel or junk bonds.
Two of the Robinson, Lake officials looked at each other and rolled their eyes. But it was clear Milken was serious. They realized that turning Milken into a nationally recognized hero was going to be an even greater challenge than they had anticipated. Lerer smiled weakly, then suggested that they were looking for something more directly related to his work at Drexel. “You really are a national resource,” one of the PR executives said. “Look at all you’ve accomplished. That’s how you should be positioned.” Lerer added that the theme he saw in Milken’s work was “creating value.” Maybe they could work that into something.
Milken showed no reaction. He simply looked blankly at them, as though such notions had never occurred to him, even though his lawyers had long been describing him as a national treasure. The others, however, were enthusiastic. “You are a national resource,” Sandler repeated. Someone else mentioned that Milken really was a “genius.” Milken demurred, saying he knew people smarter than he was; he just worked harder. Sandler, Lerer, and the others brushed aside such modesty, and gradually Milken seemed to come around, nodding in agreement as he seemed to ponder the concepts. Soon, “creating value” were buzz words of the Milken defense effort.
The firm of Robinson, Lake insisted that Milken could no longer remain a recluse, that he had to grant some press interviews. Milken was leery of the prospect—he had, after all, gone so far as to buy up the copyrights to all wire service photographs of himself. Sandler too was averse to the idea at first, fearful that Milken was too naïve about press relations to risk interviews with anyone other than carefully screened ideologues like Edward Epstein. Once they were assured that interviews would be strictly controlled, however, and used as an opportunity both to “humanize” Milken and to project themes favorable to his defense, Sandler and Milken agreed to test the waters.
Robinson and Lerer set about arranging strictly controlled personal interviews with selected reporters. Any questions about the investigation were off limits; nonetheless, Lerer boasted that reporters were “salivating” for access. The quid pro quo was that the coverage must be deemed “fair” by Milken or all future access would be denied. A parade of reporters came to California, including David Vise from The Washington Post, Kurt Eichenwald from The New York Times, and Scott Paltrow from the Los Angeles Times. To them Milken expounded on the importance of family, the merits of junk bonds, the need to keep America competitive, and the issue of Third World debt.
Lerer would call these reporters frequently, working the phones as he played Nintendo in his office, or calling from his car, planting story ideas worked up by members of his staff. Occasionally he dribbled bits of “exclusive” information to his current favorites. Lerer once called it “breast-feeding” the reporters. Lerer encouraged his staff by telling them they were “trying to turn a battleship in the water,” and, in another metaphor, to be content with hitting “singles and doubles.” Every once in a while they hit what they considered a “home run,” such as the time Business Week’s Chris Welles criticized the SEC for leaking to The Wall Street Journal.
By contrast, The Wall Street Journal news pages and Fortune magazine were considered anathema. Robinson herself made a personal pilgrimage to meet with editors and reporters at the Journal, threatening that when Milken and Drexel were exonerated, as they undoubtedly would be, the news might have to be leaked to the rival New York Times in retaliation for the Journal’s unfriendly coverage. The Milken camp also tried, unsuccessfully, to cultivate a Los Angeles-based Journal reporter in an effort to split the paper’s reporting ranks. Fortune was banished after referring to Milken’s public-relations effort as “inept.”
Robinson, Lake had a much easier time dealing with the nation’s op-ed pages. With a ready supply of willing Milken clients at their disposal, the public-relations staff began churning out think pieces endorsing various pro-Milken themes, such as “junk bonds make America competitive.” These would be signed by Milken clients and published under their names. Thus, commentary and letters to the editor purporting to have been authored by, for example, Reginald Lewis, head of Beatrice International, William McGowan, the chairman of MCI, and Ralph Ingersoll, chairman of Ingersoll, were actually crafted by Robinson, Lake, often reviewed by lawyers at Liman’s firm, Paul, Weiss, and edited by Milken himself.
The public-relations staff also churned out lists of what were called “talking points,” short, pithy pro-Milken pronouncements that loyalists should insert into interviews, and “tag words,” even shorter sound bites like “creating value” and “national treasure.”
Yet some efforts inevitably went awry. After Lerer spent considerable time on an op-ed submission for Warner chairman Steve Ross, Ross refused to sign it, despite his personal friendship with Robinson.
Especially embarrassing was a “Nightline” television appearance by Ralph Ingersoll, chosen for his loyalty to Milken and his willingness to go on national televisio
n. Everything Ingersoll was supposed to say was carefully scripted by Robinson, Lake and reduced to about 20 “sound bites.” Ingersoll’s key line was “What kind of society do we live in that indicts a man it should be adulating?” Ingersoll had no trouble with it in rehearsals. But when he got on the air, the Robinson, Lake team watched, horrified, as he fumbled phrases and talking points, garbled sound bites, and appeared to forget his key line altogether. Ingersoll was easily outmaneuvered on the show by Giuliani.
The Robinson, Lake campaign was intended to ensure that the nation received a constant barrage of the same words and phrases, achieving much the same effect as an ad campaign. The goal, Robinson and Lerer told their staff, was to turn public opinion from outrage to neutrality to acceptance, and finally to admiration. The campaign was remarkably effective. The SEC staff and assistant U.S. attorneys, hobbled by severe restrictions on what they could say to the press and intimidated by allegations that they were leaking, watched dismayed as the pro-Milken line gradually built into a chorus.
The entire public-relations effort was enormously lucrative for Robinson, Lake, which demanded a $150,000-a-month retainer and often exceeded it in actual billings. When partner Walter Montgomery expressed concern that representing a prominent alleged criminal might tarnish the firm’s reputation with the blue-chip clients it hoped to cultivate, he was ignored. Just as in the Milken legal defense, the possibility that Milken might have done something wrong was never discussed. The very idea was heretical. Robinson would occasionally spring what staffers deemed to be Milken “loyalty tests.” One afternoon, David Gilman, an employee working on the Milken account, was conferring with Lerer when Robinson marched into Lerer’s office and stared intently at Gilman.
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