Den of Thieves

by James B. Stewart

  Historians and philosophers will debate for years the question of whether, in the cases of Milken, Boesky, Siegel, Levine, and their allies, the punishments fit the crimes. With the benefit of perfect hindsight, it is easy to argue that prosecutors and the SEC should have extracted more draconian terms. The money forfeited, enormous though it is, will never make up for the losses caused to investors, to taxpayers, and to innocent workers whose jobs were sacrificed to make junk bond payments.

  But no one had the benefit of such hindsight in 1986. All that was known was that a cancer was eating away at the moral fabric of Wall Street and the American economy. That cancer was stopped in its tracks. The principal wrongdoers were caught. All their vast money and power couldn’t buy the outcome they craved. The markets survived and even flourished; the American economy was showing modest signs of recovery by mid-1992. Perhaps most important, integrity seemed to have regained a place among the values at the center of American life.

  Fifty years passed between the scandals of the 1920s and their counterparts in the 1980s. If Wall Street escapes another major threat to its integrity for even half as long, the crackdown that culminated in Milken’s conviction will have proven of historic value.

  Ilan Reich and Robert Wilkis reported to the federal penitentiary at Danbury, Connecticut, on the same day, March 27, 1987. They had met for the first time only after the collapse of the Levine ring, and the shared experience might have launched a friendship. But they reacted differently to prison. Reich became progressively more listless and withdrawn. Wilkis was outgoing and threw himself into an exercise program.

  The two men were released after serving eight months of their year-and-a-day sentences. They haven’t met since. Reich began work as a consultant for a New York real estate developer. Wilkis found a new career in the entertainment industry, helping to put together a deal to finance Radio City Music Hall’s “Easter Spectacular,” starring the Rockettes.

  Set Mooradian was granted immunity for his cooperation; he settled SEC charges and was banned from the securities industry for a year. He had trouble finding work. He was divorced in the spring of 1990 and had to sell his house in New Jersey. He bought a used IBM personal computer from the defunct Boesky organization, and has been teaching himself to use it.

  James Dahl sold his house in Beverly Hills and built a new house on a large tract of land in the Jacksonville area, not far from Siegel. Though he had vowed to stay away from the business world, he has become a consultant to the family that controls the Winn-Dixie supermarket chain. He spent much of his time preparing for the depositions that, much to his relief, never took place. He remains a multimillionaire even after paying his share of various Drexel- and Milken-related settlements.

  Even before his conviction was reversed, Mulheren had had no difficulty raising capital from major investors such as the Belzberg and Tisch families. He formed a new partnership, Buffalo Partners, named for the herd of buffalo he keeps on his Virginia estate. He continues his splashy investment style from offices on Broad Street in downtown Manhattan, commuting from his New Jersey mansion. Mulheren’s SEC agreement prevents him from trading on his own behalf, but he simply executes trades through Merrill Lynch and Bear, Stearns.

  Robert Freeman served his four-month sentence and was released on August 30, 1990. His guilty plea didn’t call for cooperation with prosecutors. He remains an active investor, and outwardly, little has changed. In the summer of 1991, he and his friends James Regan and Henry Kravis attended a golf outing hosted by Granite Capital, a partnership formed by Freeman’s former Goldman, Sachs colleague Lew Eisenberg.

  Dennis Levine complained that he was ostracized as a “squealer” at Lewisburg, a federal prison in central Pennsylvania. He worked on the landscaping crew. He completed his sentence in a Manhattan halfway house and was released on September 8, 1988.

  Levine promptly founded his own financial advisory firm, Adasar Group, and assiduously courted further publicity. Levine published an account of his experiences in the May 19, 1990, issue of Fortune magazine, and, with a ghostwriter, wrote a book entitled Inside Out.

  Having failed to get his picture on the cover of Newsweek, Levine realized an even greater ambition when “60 Minutes” scheduled an interview with him to coincide with the September launch of his new book. What Levine must have expected was a fawning celebrity profile. Instead, the segment was a classic of investigative television journalism. Reporter Ed Bradley probed the dealings of Levine’s new business venture, discovering that Levine was charging questionable up-front fees to obtain financing that never materialized. The source of the financing proved to be a fraudulent Panama-based lending company, and the man Levine introduced to potential borrowers as an investment banking colleague from Drexel was actually a fellow inmate from Lewisburg. The show featured two Levine clients who claimed to have been defrauded by him. When Levine was confronted with the allegations on camera, his ingratiating charm visibly melted.

  A “60 Minutes” producer later said there were numerous other victims too embarrassed to appear on national TV admitting that they’d been duped by Levine. Levine was hit with a new flurry of civil suits. His coast-to-coast book tour was abruptly canceled, and Inside Out bombed in bookstores. Levine largely vanished from public view. Until then, he’d been spotted lunching in the Four Seasons restaurant and skiing with his family at Vail, as though the insider-trading scandal had never struck. He apparently no longer lives on Park Avenue. Callers to his phone there are told to dial a Long Island area code and number; the exchange is located in Port Washington, an affluent New York suburb.

  Ivan Boesky completed his term in Lompoc prison on December 15, 1989, and was released from a Brooklyn halfway house three-and-a-half months later, after serving two years of his three-year term. While in prison, he grew a flowing white beard and shoulder-length hair. He acknowledged during testimony in the Mulheren trial that he paid other inmates to do his laundry. Like Levine, he was ostracized as an informant. Inmates tacked cartoons making fun of him on the prison bulletin board.

  Since his release, Boesky seems to have been trying to find himself. He has approached potential investors about forming an offshore investment limited partnership. Unlike Mulheren and Freeman, however, who didn’t implicate others on Wall Street, Boesky has been given a cold shoulder by wealthy investors. Friends say he now realizes his notoriety precludes another financial career. After the attempted Soviet coup and the rise of Boris Yeltsin in 1991, Boesky showed up in Moscow. Noting his own Russian ancestry, Boesky volunteered his services to Russians seeking advice in the transition to a market economy. But even in Moscow, Boesky was politely rebuffed. Boesky has also told friends that he is considering a career as a theatrical producer. His son Billy wrote and produced an off-off-Broadway play called Fallen Angel. It’s about a son whose father goes to prison.

  Boesky has been spending much of his time in France, both in Paris and on the Côte d’Azur, where he has been seen with Wekili. Seema Boesky continues to live on the Mt. Kisco estate. Boesky still arrives at meetings in chauffeured limousines and dines at expensive restaurants in Paris and New York. He is again clean-shaven and neatly groomed, and he has resumed wearing his trademark black suits, except in the theater world of downtown Manhattan, where he has been seen wearing a black T-shirt and black jeans.

  In an April 1992 deposition in a civil case, Boesky refused to say where he lived or reveal his net worth. But when asked by an opposing lawyer if he had a chauffeur for his car, he paused and then said, “No. Do you want the job?”

  Michael Milken took the witness stand in the Rosenthal trial on June 1, 1992, his first public appearance since imprisonment. Without his dark, curly hairpiece—federal regulations bar them, as well as hats, on security grounds—he was barely recognizable. His hair was streaked with gray, and he seemed older. Otherwise he seemed fit, relaxed, even eager for his day in court. The Manhattan courtroom was packed; scores of onlookers were turned away at the door.


  Suspense over whether Milken would betray his former ally Rosenthal in an effort to ingratiate himself with Judge Wood was quickly dispelled. For the most part, Milken treated his testimony as simply another public-relations opportunity to defend his record and the legacy of junk bonds. He admitted his own crimes, but seized every opportunity to minimize their significance. What prosecutors described as kickbacks and bribes, Milken called “sales credits.” Helping a customer evade taxes was “account accommodation.” He never used the term “junk bond.”

  Though Milken was called by the government, he seemed more a defense witness, especially since Rosenthal’s lawyer was Peter Fleming, the former Drexel lawyer who had been a Milken partisan to the end, even offering to join Milken’s defense team after Drexel pleaded guilty. Milken seemed to have abandoned any attempt to impress the government. Asked whether he might be rewarded for his testimony, he shrugged and said, “After the past five-and-a-half years, I’m not sure what expectations I can have.”

  Milken, it seems, is taking the long view, looking beyond his prison term, which is likely to last another two to three years. He will emerge enormously wealthy. He will have friends who are rich and powerful, people he might have implicated but did not. He will undoubtedly retain a small but influential cadre of admirers among the country’s business and media elite. They will all be called upon in the battle to shape history’s verdict.

  Among the loyal foot soldiers is Lorraine Spurge, who is president of an organization called Working for the American Dream. Its sole purpose appears to be to burnish Milken’s image. Board members include Milken apologists George Gilder, the economist; Peter Magowan, the chairman of Safeway; and Jude Wanniski, a commentator and media critic.

  The book about Milken’s clients that so troubled some of Robinson Lake’s employees was published in June 1991 as Portraits of the American Dream. Ms. Spurge and members of her organization have written letters seeking financial support for the Milken cause. “People like Michael Milken are living proof that compassion not greed dominated the decade,” one such letter says.

  Martin Siegel entered the federal prison at Jesup, Georgia, on July 1, 1990, and was released on August 24. He painted lines on the prison parking lot and helped computerize the prison library.

  Phil Donahue, once Siegel’s next-door neighbor in Connecticut, bought Siegel’s former home in Greens Farms for $4.75 million. Donahue leveled the house to expand his own grounds.

  Siegel created a computer camp for underprivileged Jacksonville high school students, where he now works full time as part of his two-year community service sentence. The program has grown from 8 to more than 150 participants, under the auspices of Florida Community College at Jacksonville and its Urban Resources Center, which aims to improve the training of the Jacksonville-area work force.

  Since his sentencing, Siegel has had a recurring dream. Dressed like an investment banker in a conservative suit, he walks into the law office of his former mentor, Martin Lipton. In the dream, Lipton gets up and walks toward Siegel. Lipton embraces him, and then says, “I forgive you.”

  Chronology

  MAY 1986 The SEC and federal prosecutors accuse Dennis Levine of making $12.6 million in insider-trading profits.

  NOVEMBER 1986 Ivan F. Boesky agrees to pay a $100 million penalty to settle SEC charges of insider trading. Prosecutors reveal he has been cooperating in an undercover investigation. Drexel Burnham Lambert and Michael Milken receive subpoenas.

  FEBRUARY 1987 Levine is sentenced to two years in prison.

  FEBRUARY 1987 Robert Freeman, Richard Wigton, and Timothy Tabor are arrested on insider-trading charges. Martin Siegel admits insider trading and is identified as cooperating in the government’s investigation.

  MAY 1987 The indictments of Freeman, Wigton, and Tabor are dismissed. Prosecutors vow to seek a new indictment.

  OCTOBER 1987 The stock market crashes.

  DECEMBER 1987 Boesky is sentenced to three years in prison.

  FEBRUARY 1988 John Mulheren is arrested on weapons charges for allegedly trying to kill Boesky.

  SEPTEMBER 1988 The SEC accuses Drexel, Milken, and others of insider trading, stock manipulation, fraud, and other violations of federal securities laws.

  DECEMBER 1988 Drexel agrees to plead guilty to six felonies, settle SEC charges, and pay a record $650 million.

  MARCH 1989 Milken and his brother Lowell are indicted on 98 counts of racketeering and securities fraud.

  AUGUST 1989 Freeman pleads guilty to one count of insider trading. The investigation of Wigton and Tabor is dropped.

  OCTOBER 1989 The junk-bond market collapses.

  FEBRUARY 1990 Drexel files for bankruptcy-court protection.

  APRIL 1990 Milken agrees to plead guilty to six felonies and pay $600 million.

  JUNE 1990 Siegel is sentenced to two months in prison.

  JULY 1990 Mulheren is convicted; the conviction is later reversed.

  NOVEMBER 1990 Milken is sentenced to ten years in prison.

  Acknowledgments

  This book couldn’t have been written without the extraordinary support and patience of my colleagues at The Wall Street Journal. I will always be indebted and grateful to Norman Pearlstine, the Journal’s executive editor, who backed my reporting at every step and encouraged me when I most needed his support. He has given this book his enthusiastic backing and has been a sensitive and perceptive editor.

  Paul Steiger, the Journal’s managing editor, has been a staunch defender of my reporting and I have benefited on numerous occasions from his advice, maturity, and good judgment.

  Daniel Hertzberg was my collaborator on many stories during the scandal. His talent and dedication inspired me on countless occasions, and much of what appears in this book would not have been uncovered without him. In the additional reporting I did for this book, I tried to emulate the high standards he always insisted upon.

  The Journal’s Laurie P. Cohen acted as a researcher and reporter for this book. Her contributions far exceed those of the usual research assistant, and she was instrumental in gaining the cooperation of many sources. Steve Swartz provided valuable advice and served as a sounding board throughout the reporting and writing process. Fred Saez did much of the fact-checking and computer research. The Journal’s computer experts, Richard Schuster, Cathy Fiducia, and Jim McDonald, rescued me from technological crises.

  The talented editors who work on page one—Jane Berentson, Dan Kelly, John Brecher, John Bussey, Jane Mayer, Paul Martin, Henry Myers, David Sanford, Tim Smith, and Chuck Stevens—bore the brunt of my absences and distractions. Along with news assistant Christine McAuley, they responded with hard work and good spirits. I am also indebted to the Journal’s bureau chiefs and reporters for their patience and understanding.

  At Simon & Schuster, Alice Mayhew has been a superb editor at all stages of this project, our third collaboration. George Hodgman also did outstanding editing on the text. Simon & Schuster has provided enormous support; I am especially grateful to Richard Snyder, Charles Hayward, Jack McKeown, Eric Rayman, copy editor Michael Cain, and photo researcher Vincent Virga.

  My agent, Amanda Urban, has been enthusiastic and diligent from the beginning of this project. I also owe thanks to Joni Evans, who encouraged me to do this book while she was at Simon & Schuster.

  Probably none have suffered through the reporting and writing of this book more patiently and with better spirits than my family and friends, the people I love. I hope that I can repay them in the years ahead, and that this book will somehow begin to compensate them for my at times inexcusable absorption in my work.

  Above all, I am grateful to my parents. At their hands I learned the moral lessons of this book long before I knew anything about the riches and power of Wall Street.

  Photographs

  (1) At his peak, arbitrageur Ivan Boesky controlled $3 billion worth of stock-purchasing power, enough to strike terror into almost any corporation with a single phone call. “Greed is all
right,” he advised graduates of the University of California in 1985, coining a slogan for a decade.

  (2) From his X-shaped trading desk in Beverly Hills, Michael Milken ruled a junk bond empire that, by 1986, boasted $125 billion in new issues, nearly a ninefold gain in just a decade.

  He was the most powerful man in American finance—and one of the richest, with earnings in one year of $550 million. “We’re going to tee-up GM, Ford, and IBM,” he told a colleague, “and make them cringe.”

  (3) The 200-acre Boesky estate in Westchester County featured a Georgian-style mansion, an inflatable tennis bubble for indoor play, and adjoining squash courts. Carpeting was embossed with the monogram “IFB.” Boesky later filed an application to remodel the mansion into a replica of Monticello, Thomas Jefferson’s home.

  (4) Few people knew the real Boesky, not even his wife, Seema. He dreamed of being a “latter-day Rothschild,” as he told one of his employees. But be also led multiple secret lives. He told one confidante he’d been a CIA agent in Iran. His constant companion was a mysterious Iranian, Hushang Wekili, who earned a $1 million salary for no visible work. Boesky was shadowed by armed bodyguards. “In my business, you need protection,” he told a visitor.

  (5) At a conference on Latin American debt in Tijuana, Mexico, Milken spoke in front of his own larger-than-life image. He was hailed as a “genius” and a “king,” the man who could solve everything from the Third World debt crisis to the savings and loan crisis to the balance of payments problem.