Inside, the courtroom had the improbable air of a reunion. It was packed with supporters of Milken, including family members and Don Engel, who had rallied former colleagues and clients. There was a large contingent of government lawyers who had devoted much time to the case, and reporters crowded the jury box and spilled out into the audience. Many knew each other well after four years of covering the story.
There were titters when Judge Kimba Wood told Milken that the court would appoint a lawyer for him if he couldn’t afford his own counsel. Then the mood turned somber, as Milken began to read a detailed confession to the six felonies: conspiracy with Boesky; aiding and abetting the filing of false statements in connection with the Fischbach scheme; aiding and abetting the evasion of net capital rules; securities fraud for concealing the ownership of MCA stock; mail fraud for defrauding investors in Finsbury; and assisting the filing of a false tax return, for the tax scheme with David Solomon.
Still, Milken clung to the public image he had tried so hard to nurture. He argued that his admission of guilt was “not a reflection on the underlying soundness and integrity of the segment of the capital markets in which we specialized and which provided capital that enabled hundreds of companies to survive, expand and flourish.” Then he reached his conclusion.
“I realize that by my acts I have hurt those who are closest to me,” Milken said, beginning to have difficulty with his words. “I am truly sorry. . . . ” His voice choked and he started to fall forward. Liman and Flumenbaum rushed to his side. As they supported him, he covered his face in his hands and sobbed. Under the high, coffered ceiling of the courtroom, he suddenly seemed very frail.
That night, far from the television cameras and talk shows, the government lawyers who had made it all possible convened at the old-fashioned, inexpensive Harvey’s Chelsea Restaurant on West 18th Street for their first and only celebration. Some had never actually worked together. Carberry, Lynch, and Baird all came back, joining Carroll, Fardella, Sturc, Cohen, Cartusciello, and other veterans. Neither Giuliani nor Romano were there. This was a party for those who’d never been in the limelight.
The Milken-led PR attacks had forged an unusual level of camaraderie. Morale in the U.S. attorney’s and SEC offices is usually buoyed by two convictions: that the government’s cause is just, and that the government will win. In the Milken case, both those beliefs had come under intense attack. Inevitably, there had been moments of doubt. The lawyers had had only each other for support.
When the check came, the lawyers who were now in private practice picked it up. Even though their collective efforts had raised well over $1 billion in fines and penalties for the U.S. Treasury, the taxpayers couldn’t pay for a celebratory dinner, not even a modest one.
Milken’s sudden capitulation took the spotlight, but not the pressure, off John Mulheren, the last major target still awaiting trial. Mulheren had again rebuffed offers of a plea to a single felony, and his trial on multiple parking, tax fraud, evading net capital requirements, and stock manipulation counts began in May, with Boesky slated to be the star witness.
On May 22, Boesky, dressed in his black suit and white shirt, with neatly trimmed hair, made his courtroom debut as a witness, a role for which he had been preparing since he agreed to plead guilty in 1986. He performed abysmally. He was stiff, awkward, and evasive. His memory was terrible. Events that he had remembered with considerable clarity when he was first debriefed by prosecutors now escaped him. By allowing him to complete his prison term—Boesky had been released from Lompoc to a Brooklyn halfway house in December 1989 after completing 18 months of his prison sentence, and left the halfway house four months later—prosecutors had lost most of the leverage they once held over him. Puccio could easily have challenged Boesky’s credibility on cross-examination based on his deviations from his earlier statements to prosecutors—but, in nearly every case, his earlier testimony had been more damaging to Mulheren.
Boesky avoided looking at Mulheren, who was in the courtroom, dressed in jeans or khakis and his signature polo shirts. Boesky testified that he had once considered himself a “close friend” of Mulheren. This led to speculation that Boesky was still doing his best, short of committing perjury, to protect Mulheren. If so, the effort made little impression on Mulheren.
“When you hear my testimony, you’ll realize he wasn’t much of a friend,” Mulheren remarked to a reporter during one of the breaks.
Puccio’s eagerly awaited cross-examination did nothing to damage Boesky’s already shaky credibility. Despite the Kroll investigation commissioned by Milken’s lawyers (and turned over to Puccio), and despite years of probing Boesky’s affairs, lawyers for those implicated by Boesky had found nothing particularly damaging. Puccio was left to review Boesky’s crimes and the numerous occasions he admitted having lied, all of which were already known.
In any event, as would have been the case in a trial of Milken, Boesky wasn’t the pivotal witness. Far more damaging to Mulheren was testimony by Davidoff and by a witness from Mulheren’s own firm who had cooperated with the government.
Conspicuous by his absence was the once formidable raider Carl Icahn, who figured so prominently in the Gulf + Western manipulation charges and who had been included in Boesky’s initial proffer to the government. Icahn was never charged with a crime, and the investigation of him had become moribund. Prosecutors had never been able to prove that Icahn and Boesky had acted as a “group,” within the meaning of securities laws, when they joined to threaten Gulf + Western, even though their behavior had had virtually the same effect as if they had.
Mulheren testified in his own behalf, cheerfully admitting some of the most damaging facts, such as the agreement to reimburse Boesky through inflated invoice payments. “I increased the bills,” Mulheren said, “to get them back a favor.” But he insisted it wasn’t part of an illegal parking arrangement and that he believed he bore the risks in the positions he took at Boesky’s behest. He also testified that he had felt victimized by the Gulf + Western deal, that he hadn’t been trying to push up the stock price and hadn’t known Boesky was trying to use him to get out at a higher price.
Of all the defendants to take the stand in the insider-trading scandal, Mulheren was the most credible. Yet, after six and a half days of deliberations, the jury found him guilty of conspiracy and securities fraud, ruling that he had manipulated Gulf + Western’s stock price. It said it was hopelessly hung on the 26 counts of parking, and the judge declared a mistrial on those counts on July 22. Mulheren, however, still faced sentencing on the other charges, and the government reserved the right to retry him on the parking charges. Mulheren seemed stoic as the verdict was read. “I was quite surprised it ended like this,” he said. But if nothing else, he had stood on principle.
That summer, Martin Siegel finally ended his long exile, returning in June to Manhattan federal court for his sentencing. Prosecutors had spent much of the year after Freeman’s guilty plea squabbling about whether they could introduce the evidence of further wrongdoing by Freeman at Freeman’s sentencing hearing. The judge in the case had finally rejected the idea, even though such procedures are not uncommon. He ruled that Freeman’s lawyers were so likely to overwhelm the court with evidence that the sentencing hearing could end up taking many months.
Since February 1987, Siegel had been held in reserve as a potential witness. Finally, on April 13, 1990, Freeman had been sentenced on his single felony count. He was given a relatively light sentence of four months in prison and a fine of $1 million. “The trading of inside information has become a watchword or standard practice of arbitrage,” Judge Pierre Leval commented.
Ultimately, all the delays worked to Siegel’s advantage. Over the years of the investigation, the prosecutors had concluded that Siegel, almost alone among all those caught up in the scandal, had displayed true remorse. He had done his best to tell the truth, spending countless hours explaining the workings of the market and guiding the government through reams of c
omplicated trading records. He had seemed, in fact, almost like part of the team of prosecutors.
In a presentencing hearing with the presiding judge, Robert Ward, Rakoff made his case for a lenient sentence, and Ward seemed sympathetic. Cartusciello also came through for Siegel. In a sentencing report that seemed unprecedented in the annals of St. Andrews Plaza, the prosecutors’ presentation was, if anything, more favorable than the one prepared by Rakoff. The government praised Siegel as a “credible and reliable” witness who cooperated despite “an intense campaign of vilification.”
On June 18, Siegel flew to New York from Jacksonville and appeared in Manhattan federal court. He and Jane Day still made a handsome couple; both were tanned. She wore a simple navy dress and a strand of pearls. He was still fit and trim, wearing a dark business suit. He looked anxious and contrite as he stood before Judge Ward.
The judge lectured at length on the importance of Siegel’s cooperation, and the need to reward such forthrightness if law enforcement is to succeed. Nonetheless, he insisted on the need to impose a prison term to deter white-collar crime. “After Mr. Boesky received a three-year sentence, I began to think about Mr. Siegel,” Judge Ward said. “At that time, I was of the view that a [prison term] of eighteen months to two years would be reasonable.” But he considered Siegel’s cooperation and the fact that Freeman, who didn’t cooperate, had received a light sentence. He had concluded, he said, that Siegel should serve “a sentence less than imposed on Mr. Freeman.”
Judge Ward sentenced Siegel to two months in prison and five years’ probation, working on the computer camp for children he had been setting up in Jacksonville. It seemed to take a moment for the brevity of the prison term pronounced by Judge Ward to dawn on Siegel. Then Jane Day threw her arms around him and they hurried, relief evident on their faces, from the courtroom.
By November 1990, despite all the efforts of the Milken team, public opinion had turned against Milken with a vengeance. It was as if all the negative publicity Robinson, Lake had managed to stave off had been unleashed at once. Milken was blamed, often unfairly, for all of America’s failings. A recession had begun that summer, ending the economic boom of the eighties. The savings and loan debacle, in which junk bonds had played a significant role, was growing worse by the week, costing taxpayers billions of dollars. Milken had now supplanted Boesky as the embodiment of a decade of greed.
On Wednesday morning, November 21, 1990, Milken returned to the same courtroom where he had entered his guilty plea. His wife, his mother, his brother Lowell, Ken Lerer, and Richard Sandler sat behind him in the first row. As Milken sat listening, occasionally brushing away tears, Liman read at length from letters favorable to Milken and asked the court for leniency. Fardella, representing the government, urged that Milken be sentenced to a prison term as a deterrent to other potential criminals. In their sentencing memo, the prosecutors excoriated Milken for “a pattern of calculated fraud, deceit and corruption of the highest magnitude” and argued that “Milken’s crimes were crimes of greed, arrogance and betrayal,” part of a “master scheme to acquire power and accumulate wealth.”
Suspense mounted as Judge Wood began to speak in calm, measured tones. She emphasized the “extraordinary interest” in the proceeding and said she wanted to dispel several misconceptions, among them that Milken should be punished for the economy’s and the savings and loan industry’s ills. She also rejected leniency on the grounds of Milken’s role in the economic boom. She noted the “legitimate” principle “that everyone, no matter how rich or powerful, obey the law,” and “that our financial markets in which so many people who are not rich invest their savings be free of secret manipulation. This is a concern fairly to be considered by the court.”
Judge Wood’s gracious demeanor did not mask the fact that, as she spoke, she demolished one plank of the Milken platform after another. She stated unequivocally that overzealousness on behalf of clients was no excuse; that Milken’s avoidance of more brazen crime might indicate “you were willing to commit only crimes that were unlikely to be detected.” She said that she had found evidence that he had obstructed justice. On the other hand, evidence that, as Milken claimed, the vast majority of his business was honest, “is sparse and equivocal.”
Milken seemed to be in a daze as he listened, even as Judge Wood’s remarks became more pointedly judgmental. “When a man of your power in the financial world, at the head of the most important department of one of the most important investment banking houses in this country, repeatedly conspires to violate, and violates, securities and tax laws in order to achieve more power and wealth for himself and his wealthy clients, and commits financial crimes that are particularly hard to detect, a significant prison term is required in order to deter others,” she continued. “This kind of misuse of your leadership position and enlisting employees who you supervised to assist you in violating the laws are serious crimes warranting serious punishment and the discomfort and opprobrium of being removed from society.”
“Mr. Milken,” Judge Wood commanded, “please rise.”
Milken got to his feet, and Liman and Flumenbaum moved to his side, Liman taking Milken’s elbow in support. “You are unquestionably a man of talent and industry and you have consistently shown a dedication to those less fortunate than you,” Judge Wood began, looking directly at Milken. “It is my hope that the rest of your life will fulfill the promise shown early in your career. . . .
“However, for the reasons stated earlier, I sentence you to a total of ten years in prison”—a gasp rose from the courtroom—“consisting of two years each on counts two through six to be served consecutively. . . . You may be seated at this point.”
As the judge rose and left the courtroom, Milken showed no reaction—but his family and friends looked grief-stricken. They rushed to his side, shielding him from curious reporters, and moved him quickly toward the door at the rear of the courtroom leading to the judge’s antechamber.
When Milken and his entourage had gathered in the corridor outside, the heavy door to the courtroom was firmly closed, blocking access. Milken had still said nothing, and looked confused and disoriented. Then he turned to Liman. “How much did I get?” he asked, as if he hadn’t heard Judge Wood. “Two years?”
There was a moment of stunned silence. His lawyers suddenly realized that Milken, hearing he was being sentenced to two years on each of the various counts, hadn’t understood he’d been given consecutive sentences. Liman broke the news. “Ten years, Michael,” he said gently. “The sentence is ten years.”
The blood drained from Milken’s face. He took Lori’s arm and the two disappeared into a small witness’s waiting room off the corridor, closing the door behind them.
Moments later, first Lori, and then Milken, emitted bloodcurdling screams. Sandler burst into the room as Milken collapsed into a chair, hyperventilating, struggling for breath. “Oxygen!” someone yelled, as a federal marshal raced for help.
Epilogue
Michael Milken entered the federal minimum-security prison in Pleasanton, California, outside San Francisco, on March 3, 1991. There he now puts in a 37-hour work week in maintenance and construction. He often wears a baseball cap; prison regulations don’t permit a hairpiece. Milken will first be considered for parole in March 1993; Judge Wood recommended that he serve a minimum of 36 to 40 months.
For Milken, his sentencing and imprisonment marked not an end but a continuation of the struggle to defy his accusers and to build a personal fortune of historic dimension. The battle, fueled by Milken’s millions, has continued on virtually every front, and is likely to continue as long as Milken lives.
To his already vast legal and public relations counsel, Milken added celebrity criminal defense lawyer Alan Dershowitz, best known for his successful defense of Claus von Bülow and his unsuccessful defense of hotelier Leona Helmsley. Milken’s lawyers filed a motion to reduce his prison sentence before Judge Wood; Dershowitz has been considering, among other strate
gies, a motion to undo Milken’s guilty plea on the grounds that it was illegally coerced by prosecutors. Dershowitz has also publicly pressed other assertions, contending that Milken is a victim of anti-Semitism and that Milken was “never motivated by money.” Despite his incarceration, Milken has been intimately involved in every aspect of his continuing legal and public-relations campaign, with the Gulfstream jet pressed into overtime service ferrying visitors into and out of the Pleasanton area. Milken himself has told former colleagues that pleading guilty was a mistake and that he no longer believes he did anything wrong.
Robinson, Lake has continued to help Milken pursue an aggressive public-relations campaign. After elaborate negotiations, Forbes magazine was allowed to interview Milken at Pleasanton and on the telephone, and the resulting “Q and A” became one of the magazine’s 1992 cover stories. In the interview, Milken stopped short of out-and-out defiance of the government by not insisting that he’d done nothing wrong and that he’d only pleaded guilty to escape indefinite government harassment. (To do so might doom any chance of a reduced sentence.) But the interview left little doubt that such assertions lie in the future. Indeed, what was most remarkable about Milken’s long, rambling defense of junk bonds and his role in the economy was his lack of repentance. It was as though none of the events of the last five years—the stock-market crash, the junk-bond collapse, the bankruptcy of scores of highly leveraged clients, and even his own conviction and imprisonment—had made any dent on Milken’s thinking. The same carefully crafted buzz words—“creation of value” and “saving jobs,” for example—peppered Milken’s observations, as though 1992 were 1986. Milken’s representatives were also negotiating a television interview with ABC’s Barbara Walters, intended to be the centerpiece of a new campaign to generate national sympathy.
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