(6) Martin Siegel was Kidder, Peabody & Co.’s “golden boy,” one of the country’s leading investment bankers, the symbol of a new era on Wall Street. He was the man who had everything, yet worried that everything wasn’t enough. Even as he was being lionized in the press—Business Week called him a “heartthrob”—he embarked on a double life of clandestine meetings and briefcases of cash.
(7) Though he wasn’t identified, Dennis Levine (third from right) was featured in Lehman Brothers’s 1983 Review with colleagues from the firm’s mergers-and-acquisitions department. The photo was later used by investigators in a photographic “lineup.” Employees at Bank Leu in the Bahamas identified Levine as their mysterious customer, “Mr. Diamond.”
(8) Frederick Joseph, who became Drexel’s chief executive, vowed to make the firm into a rival of Salomon Brothers and Goldman, Sachs. Against what seemed impossible odds, he succeeded. But he couldn’t believe that Milken, the man who’d made it all possible, would destroy everything he’d built—until it was too late.
(9) Kidder, Peabody & Co. chairman Ralph DeNunzio staked the firm’s future on Siegel’s performance, and his gamble paid off. When he learned that at least part of Siegel’s success stemmed from inside information from Goldman, Sachs, he said only two words: “Protect yourself.”
(10) Manhattan U.S. Attorney Rudolph Giuliani (left) brought new life—and hardball tactics—to a nearly moribund office. When crossed by the SEC, he threatened to derail the whole Milken case. But he presided over the most effective crackdown on Wall Street since the passage of the securities laws. Bruce Baird (right) became one of his top lieutenants.
(11) Assistant U.S. Attorney Charles Carberry, head of the securities fraud unit, secured the guilty pleas of Dennis Levine and Ivan Boesky. One of the best-liked lawyers in the office, he quit after his arrests of three top arbitrageurs backfired.
(12) No one worked longer and harder to bring the Wall Street criminals to justice than Gary Lynch, chief of enforcement at the Securities and Exchange Commission. He was so demoralized by press criticism of the $100 million Boesky settlement and guilty plea that he nearly resigned. But he rallied his staff. “We are engaged in what may be the most important thing we will ever do in our lives,” he said.
(13) Though he had always shunned the press, Milken found it increasingly difficult to avoid camera crews after news reports revealed that he was under investigation. On his right is Ralph Ingersoll, of Ingersoll Publications, a major Milken client and an ardent champion of Milken’s innocence. Ingersoll, chosen to represent Milken’s case in an appearance on ABC’s “Nightline,” made a hapless figure on television, bungling the lines scripted by the Milken public relations machine.
(14) Lisa Ann Jones ran away from home and found riches working for Milken in Beverly Hills. But she proved too loyal for her own good. After she lied to protect Milken, she was slapped with a perjury indictment. She became the first Drexel employee convicted in the scandal, and the first to go to jail.
(15) John Mulheren was Boesky’s best friend on Wall Street. When he learned that Boesky had implicated him in the scandal, Mulheren, a manic-depressive, loaded a small arsenal of weapons into his car—and set out to kill Boesky. One of the few alleged conspirators to go to trial, he was convicted, but won on appeal.
(16) The press barrage that accompanied the announcement of Boesky’s agreement to plead guilty made him, overnight, a national symbol of greed. When he entered his guilty plea in April 1987, he seemed gaunt and thin. He had hoped to escape the press by slipping out a side door of the federal courthouse, but camera crews had staked out every entrance. They stampeded when he appeared, trampling over parked cars to reach him.
(17) After pleading guilty and cooperating with prosecutors, Dennis Levine was sentenced to three years in prison at a White Plains, New York, courthouse in March 1987. He agreed to pay $11.6 million in fines and penalties. “Through the information he has provided, an entire nest of vipers on Wall Street has been exposed,” the sentencing judge said. Levine’s wife, Laurie, is at the left, and one of his lawyers, Martin Flumenbaum, is between them.
(18) Milken managed a wan smile as he arrived at the courthouse to enter his plea of not guilty to a 98-count indictment in April 1989. His wife, Lori, is at his right. Directly behind him is one of his chief public relations spokesmen, Kenneth Lerer, who is flanked by Milken lawyers Martin Flumenbaum, on Lerer’s right, and Arthur Liman, partially obscured on Lerer’s left. Behind Lerer is Lowell Milken, Milken’s brother, who was also charged in the indictment.
(19) Milken hired the most powerful public relations team ever fielded by an individual criminal defendant. One of his leading strategists was Linda Robinson, a Ronald Reagan supporter and former acupuncture specialist who brought Republican-style “attack” politics to the public relations field. She wielded enormous influence, both in her own right and through her powerful husband, American Express chairman James Robinson, pictured on her right at a charity gala. Milken’s legal and public relations costs were so steep that Drexel, which paid the bills, put Milken on a “budget” of $1.2 million a month.
(20) Milken’s first encounter with a potentially hostile audience came at a Congressional hearing convened by Congressman John Dingell in April 1988. On the advice of his counsel, legendary trial lawyer Edward Bennett Williams, seated on Milken’s left, Milken invoked the Fifth Amendment and refused to answer questions. Williams died later that year, and Milken attended his funeral in Washington, covering his face with his hands and weeping.
(21) Arthur Liman, pictured at Milken’s left, stepped into the void left by Williams’s death and became Milken’s principal lawyer. Best known for his role in the televised Iran/Contra hearings, Liman disdained talk of settlement and portrayed Milken as a “national treasure.” Sycophancy reigned in the Milken camp, with Milken’s advisors mostly telling Milken what he wanted to hear.
(22) In anticipation of the possibility of a jury made up largely of minorities, Milken launched a campaign to recruit support in the black community. He hailed Jesse Jackson as a “close friend” at a party for black junior high school students in Los Angeles. Here, Milken hosts a Variety Charities circus benefit in Los Angeles.
For a time, Milken managed to keep potential witnesses in “his tent pissing out,” as Williams had put it. But, one by one, they defected into the government camp.
(23) The first major loss was James Dahl, left, the “Robert Redford of the bond world” and Milken’s top salesman. Milken stopped speaking to Dahl and banished him to another floor in Beverly Hills. But he couldn’t stop Dahl from testifying against him.
(23A) Most damaging was Setrag Mooradian, upper right, Boesky’s accountant. Mooradian had kept records of the secret arrangement between Boesky and Milken.
(24) Dahl was followed by Terren Peizer, lower right, a trader who liked to give Milken “high fives” on the trading desk but who had secretly kept incriminating documents which he handed over to prosecutors in exchange for immunity.
(25) Working undercover, Boesky secretly taped Milken during a meeting in Boesky’s suite at the Beverly Hills Hotel, above, the pink landmark in which Boesky had acquired a controlling interest. Unknown to Boesky, Milken had been tipped off that Boesky would be recording him. Still, Milken made incriminating comments and later said he hadn’t been “careful enough.”
(26, 27) Milken and his lawyers liked to say that any trial would be Milken’s word against Boesky’s, but documents corroborated Boesky. Above is a copy of a phony Drexel invoice for $5.3 million in “consulting services”—in reality, a payoff in the illegal Boesky/Milken conspiracy, and an Achilles heel in the Milken defense. Below is a copy of an anonymous letter from Caracas sent to compliance officials at Merrill Lynch that triggered the investigation of Levine and, in turn, the entire Wall Street scandal.
(28) Richard Wigton, right, was handcuffed and paraded across the trading floor at Kidder, Peabody after being implicated by Siegel, who’d once
been his “advisor” in Kidder’s secret arbitrage department. Wigton showed no emotion throughout, even when charges against him were dropped in one of the most embarrassing setbacks for the government. His lawyer, Stanley Arkin, is on Wigton’s right.
(29) Goldman, Sachs stood staunchly behind Robert Freeman, its partner in charge of arbitrage, even as evidence mounted that Freeman had entered into a wide-ranging insider-trading conspiracy with Siegel. Freeman eventually pleaded guilty to one felony after admitting that Siegel had tipped him to a development in the Beatrice deal with the cryptic words “Your bunny has a good nose.” Ironically, Siegel didn’t remember the incident.
(30) Siegel was vilified by former colleagues on Wall Street for cooperating with the government and endured what seemed an interminable exile as he waited to be sentenced. But eventually his cooperation paid off. The judge hailed his candor and sentenced him to just two months in prison. He hurried from the courthouse with his wife, Jane Day, after hearing the sentence.
(31) Judge Kimba Wood, a recent Reagan appointee to the federal bench, was assigned Milken’s case. Despite her gentle demeanor, she demolished Milken’s plea for leniency.
(32) Milken was sentenced to ten years in prison in November 1990. He agreed to pay $600 million in fines and restitution.
About the Author
James B. Stewart is the author of Heart of a Soldier, the bestselling Blind Eye and Blood Sport, and the blockbuster Den of Thieves. A former Page-One editor at The Wall Street Journal, Stewart won a Pulitzer Prize in 1988 for his reporting on the stock market crash and insider trading. He is a regular contributor to SmartMoney and The New Yorker. He lives in New York.
Also by James B. Stewart
THE PARTNERS
THE PROSECUTORS
BLOOD SPORT
FOLLOW THE STORY
BLIND EYE
HEART OF A SOLDIER
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Notes and Sources
Though I didn’t realize it at the time, my reporting for this book began the afternoon of Dennis Levine’s arrest, May 12, 1986, and has continued since then. As a Wall Street Journal reporter, I worked nearly full time on the stories of Levine, Boesky, Siegel, Drexel, Milken, and their associates until September 1988, when I became the Journal’s page-one editor. Since then, I have continued my reporting and have written several stories for the paper covering aspects of the scandal. As a reporter I worked closely with fellow Journal reporter Daniel Hertzberg, whose outstanding work helped make this book possible. After I became an editor, Laurie P. Cohen became the Journal’s chief reporter on the story and a researcher for this book. She conducted numerous interviews and became a vital part of the reporting process.
Nearly every person named in this book was interviewed or was asked for an interview and given an opportunity to comment. Numerous other persons with knowledge of the story were interviewed but not named. Many of the interviews were conducted on a not-for-quotation basis, but with the understanding that the text could reflect their states of mind and quotations they or others recalled. No anonymous quotations are used in this book. States of mind came from the person identified, either directly, in an interview, or from sworn testimony or notes taken by lawyers. Quotations came from the speaker, someone who heard the remark, or from transcripts and notes. In disputed cases, I accepted the speaker’s version (even in a few cases where there was sworn testimony to the contrary).
In instances where differing accounts of events couldn’t be reconciled, I have included the dissenting account in these notes and a brief explanation of why I chose the version that appears in the main text. Most of these discrepancies occur between Milken’s and Boesky’s versions of events. My reporting found that Boesky’s version was consistently more accurate. After making his plea agreement, Boesky’s only obligation was to tell the truth; indeed, his plea bargain would be revoked if he lied. In many instances, he testified under oath, and while his memory wasn’t flawless, his recollections were largely corroborated by Siegel, Mulheren, Jefferies, and others implicated by him, with the exception of Milken. In contrast, Milken didn’t testify under oath, even at his presentencing hearing, and during the investigation he repeatedly invoked the Fifth Amendment. Milken’s accounts have also changed substantially during the course of the government’s investigation, from his early protestations of innocence to his ultimate admission of guilt to six felonies.
In my reporting career, I have never before encountered a story so shrouded in secrecy. Nearly all of the participants either faced or still face potential criminal and civil charges or are likely to be witnesses in criminal or civil proceedings. Hundreds of civil suits are pending, involving billions of dollars in potential damages. In view of this, it isn’t surprising that so many felt precluded from speaking on the record. The U.S. attorney’s office and the SEC banned their employees from commenting except under extremely confining circumstances, in keeping with their usual practices. Employers also banned many from commenting. General Electric even went so far as to threaten a former Kidder, Peabody employee with termination of his pension benefits if he told his story.
Despite such obstacles, numerous people involved in every aspect of the story did agree to be interviewed. For many, this took exceptional courage and a dedication to the truth. In some cases, their cooperation was extraordinary, involving many days, repeated phone calls, and the sharing of documents and diaries. In over four years of stories for the Journal, these unnamed sources have proven their reliability and accuracy on countless occasions, despite intense campaigns to discredit the stories at the time they appeared. The passage of time has confirmed the accuracy of their statements, and I have continued to rely on them in reporting for this book.
In addition to interviews, I reviewed thousands of pages of court documents, including transcripts of court proceedings and, in a few instances, grand jury testimony and documents introduced as evidence. Many of these documents are cited in these notes.
Many participants were debriefed extensively by government lawyers, defense counsel, and other lawyers, and in some cases I had access to these lawyers’ notes. I never relied solely on personal recollections when I could obtain documentary evidence. In many cases, however, interviews supplemented the written sources, and thus the sources cited here may not contain all the detail that appears in the main text. Among the published sources cited, two stand out: The Predators’ Ball by Connie Bruck (New York: Simon & Schuster, 1988) and Levine & Co. by Douglas Frantz (New York: Henry Holt, 1987). Bruck’s seminal work on how Milken and Drexel conducted their business remains essential reading. Frantz’s account of the Levine scandal is especially good in its detailed account of Bank Leu’s role.
Prologue
page 17 Thayer was sentenced to four years in prison after pleading guilty to lying to SEC officials. He settled insider-trading charges, agreeing with his co-defendants to pay $1 million. Andy Pasztor, “Thayer, Friend Are Sentenced to Four years,” Wall Street Journal, May 5, 1985. Pownall was preparing for Thayer’s parole hearing in May 1986 when Siegel visited.
page 18 The ticker announcement of Levine’s arrest appeared at 2:46 P.M. on May 12, 1986. The full text was obtained through Dow Jones News Retrieval.
Book One. Above the Law
Chapter 1
page 26 The history of Kidder, Peabody is set forth in Vincent P. Carosso, More Than a Century of Investment Banking: The Kidder, Peabody & Co. Story (New York: McGraw-Hill, 1979).
page 27 The Pecora hearings are recorded in U.S. Senate, Committee on Banking and Currency, 73rd Cong., 2nd session, “Stock Exchange Practices: Hearings” and a resulting “Report of the Proceedings,” 1934.
page 31 Participants in the takeover panel are identified in the program.
page 32 The history of the Morgan era and Morgan’s anti-Semitism are reported in Ron Chernow, The House of Morgan (New York: Atlantic Monthly Press, 1990).
page 33 The profile of Siegel was “Takeover Target’s Defender,” Business Week, May 16, 1977, pp. 160–162.
page 40 A description of Boesky’s life and career appears in U.S. v. Ivan Boesky, Defendant’s Memorandum on Sentencing (hereafter cited as “Boesky memo”), pp. 38–40.
page 41 “Wrestling and arbitrage . . . ” and “There are times . . . ” quotes taken from Connie Bruck, “My Master Is My Purse,” The Atlantic, December 1984.
page 42 Boesky’s experience in Iran is discussed in a report prepared for Drexel Burnham Lambert by Kroll Associates, a private detective agency. Drexel turned the report over to the government.
page 42 Acquaintances of Boesky when he lived in Detroit were interviewed in 1986. Boesky’s early life is also discussed at some length in Bruck, “My Master Is My Purse.”
Den of Thieves Page 62