page 198 The Unocal transaction is described in the indictment in U.S. v. Robert Freeman. Other deals for which Freeman was investigated were first disclosed in James B. Stewart and Daniel Hertzberg, “Wall Street Inquiry Focuses on 11 Stocks,” Wall Street Journal, May 22, 1987.
page 200 Boesky disclosed another source for the Macy information within Goldman’s real estate department in interviews with prosecutors.
page 201 The quotation “Your bunny has a good nose,” was first disclosed in Stewart and Hertzberg, “Suspicious Trading,” and later was the subject of Freeman’s guilty plea. In a statement released at the time of his plea, Freeman gave this account of the conversation: “I told Mr. Siegel that I had heard there was a problem with the Beatrice LBO. He asked from whom I had heard that. When I answered Bunny Lasker, Martin Siegel said, ‘Your bunny has a good nose.’” Further details of the Beatrice situation are reported in James B. Stewart and Steve Swartz, “Abrupt Confession,” Wall Street Journal, Aug. 18, 1989.
page 202 In its original November 1985 bid for Beatrice, KKR offered $43 in cash and $7 in preferred stock per share. In January 1986, KKR modified its offer to $40 in cash and $10 in preferred stock, a bid the Beatrice board accepted in February. Although the face value of the offer remained $50 per share, or a total of about $6.2 billion, the market value of the bid dropped because of the uncertainty of the higher percentage of preferred stock (Wall Street Journal, Feb. 3, 1986).
Chapter 7
page 205 Details of Mulheren’s career, including the rescue of his son, were reported in James B. Stewart and Daniel Hertzberg, “How a Wealthy ‘Arb’ Enmeshed in Scandal Turned to Violence,” Wall Street Journal, Feb. 22, 1988.
page 206 The quotations are from Mulheren testimony, p. 2489. These quotations and those on the succeeding pages reflect Mulheren’s version of the Unocal “parking” charges. Whether Mulheren believed he was at risk or not was a major issue at his trial on parking charges, and neither Boesky nor Davidoff recalled Mulheren’s comments to the effect that he wouldn’t trade if he wasn’t at risk. Nor is the payback scheme, which Mulheren didn’t contest, consistent with Boesky bearing the risk. Prosecutors contended that Mulheren lied. Since the jury wasn’t able to reach a verdict on the parking charges, however, I have accepted Mulheren’s account in the main text.
page 207 Net capital requirements were established by the government after the 1929 crash to protect investors in securities operations like Boesky’s from excessive speculation. Boesky’s borrowing through Drexel also carried net capital requirements intended to protect debt-holders. Net capital is measured as the value of equity (gross capital) minus debt, and under the requirements it may not fall below a mandated safety margin.
page 208 The quotation is from a copy of an internal memo from Stephen J. Conway to Ivan F. Boesky dated June 18, 1985. It was introduced as government exhibit no. 34 in U.S. v. Mulheren.
page 208 The quotations are from Mulheren testimony, p. 2503.
page 208 The quotations are from Mulheren testimony, pp. 2509–10.
page 211 The account of the Diamond Shamrock/Occidental Petroleum insider trading in the text is based primarily on interviews with participants, but it is largely consistent with the account contained in Government’s Milken sentencing memo, pp. 65–70 (redacted). (The government memo was heavily redacted at the request of Milken’s lawyers, and thus the text is riddled with references to “John Doe.” In all cases, the actual names were determined through independent reporting, and appear in the main text.) The government version has Boesky calling Milken; as the text indicates, witnesses recall Milken placing the call.
In his sentencing memo, Milken didn’t address the government’s allegations to which he didn’t admit guilt, but generally Milken has insisted that he committed no crimes other than the six to which he pleaded guilty. Diamond/ Occidental was not part of the Milken plea; these charges were dropped as part of the agreement, even though they seem the most clear-cut example of insider trading by Milken. Nor did Milken address the facts of the Diamond/Occidental trading in his reply sentencing memo, arguing only that if Milken had routinely insider traded with Boesky, Boesky wouldn’t have had any reason to deal with Levine. See U.S. v. Milken, reply sentencing memo of Michael R. Milken, p. 65.
page 213 The Golden Nugget/MCA transactions were the subject of count three in Milken’s plea agreement. The facts are set forth in detail in Government’s Milken sentencing memo, pp. 37–41. Milken doesn’t dispute the facts, but argues that purchasers of MCA stock were “victims” of Boesky’s rush to sell rather than their scheme (Milken’s sentencing memo, p. 86).
page 214 The tax trades and the repayments scheme are described in Government’s Milken sentencing memo, pp. 70–77. Milken denies that the trades were “shams” for tax purposes (Milken’s reply memo, pp. 86–87).
page 216 The MGM/UA dealings are described in Government’s Milken sentencing memo, pp. 84–89. The quotations from The New York Times and The Wall Street Journal are as cited by the government. Milken denies the government’s account (Milken’s reply memo, p. 96, fn. 44).
page 217 The Pacific Lumber takeover is described in Government’s Milken sentencing memo, pp. 82–84. In his reply memo, Milken doesn’t specifically address this or other aspects of the Boesky conspiracy alleged by the government, other than to deny generally that he insider-traded or tried to influence corporate events. Milken’s lawyers stated that “it is obviously impossible for us to refute in this memorandum the government’s narrative as to each and every transaction which Boesky now claims was tainted with illegality” (Milken’s reply memo, pp. 96–97).
page 217 Harris Graphics is described in Government’s Milken sentencing memo, pp. 79–82.
page 220 The Milken-Boesky recordkeeping scheme was first described in James B. Stewart and Daniel Hertzberg, “Drexel’s Michael Milken Called a Focus of Probe of Suspected Boesky Scheme,” Wall Street Journal, Feb. 5, 1987. Milken has consistently denied the existence of a recordkeeping scheme as alleged by the government.
page 224 The Beatrice warrants are described in Smith, The Money Wars, pp. 234–235.
page 225 The source of Rosenthal’s quotation is “What’s News,” The Bawl Street Journal, June 6, 1986.
page 226 Ivan Boesky, Merger Mania (New York: Holt, Rinehart & Winston, 1985). In a review for The New Republic, James J. Cramer wrote, “Boesky’s legend will live because he spotted the Gettys, CBS and Gulfs early and he wagered it all,” a typically adulatory comment about Boesky. Cramer later bemoaned his naïveté in “All My Heroes Turned Out to Be Crooks,” M inc., June 1991.
page 227 The Boesky quotation is from David Vise, “Q and A: Ivan Boesky on the Art of Arbitrage,” Washington Post, June 23, 1985.
page 230 Boesky described the Gulf + Western dealings with Icahn in U.S. v. Mulheren, Boesky testimony, pp. 614 ff. Icahn has never testified publicly on the subject.
page 233 Boesky’s run at CBS received widespread press coverage; see, e.g., David Carey, “CBS Sues One of Its Biggest Shareholders,” Financial World, May 15, 1985.
page 233 The quotation is from Boesky testimony, p. 628.
page 236 The investors in Boesky’s partnership were disclosed in Robert J. Cole, “Drexel-Boesky Tie for Some Investors,” New York Times, Nov. 19, 1986.
page 238 The suspicious circumstances of the $5.3 million payment were first disclosed in The Wall Street Journal (see note to p. 220). In his reply memo, Milken continued to assert that the $5.3 million was an investment banking fee (Milken’s reply memo, p. 105). Drexel itself, however, no longer disputes the government’s characterization of the fee. Mooradian’s role was the subject of Daniel Hertzberg, “The Informer,” Wall Street Journal, Oct. 11, 1990.
page 241 The quotation is from a copy of the letter obtained by the author.
page 241 In its complaint against Milken and Drexel, the SEC described the invoice for the $5.3 million as follows: “To conceal the true reason for the $5.
3 million payment, Boesky, Drexel, Milken and Lowell Milken falsely described it in a confirmation to auditors, in an invoice, and in offering documents as a payment for ‘consulting services’” (SEC complaint, p.11). The Milkens and Boesky initially denied the allegations, and later settled without admitting or denying guilt.
Chapter 8
page 244 Drexel’s aggressive posture was the subject of Ann Monroe, “Drexel Burnham, Rivals Duel on Buyouts,” Wall Street Journal, April 21, 1986.
page 245 The quotations are from the complaint in Staley Continental Inc. v. Drexel Burnham Lambert et al. filed in U.S. District Court for the Northern District of Illinois. The suit and its contents were reported in Jeff Bailey and Daniel Hertzberg, “Drexel Burnham Is Sued by Staley Continental Inc.,” Wall Street Journal, Feb. 20, 1987. Dahl has denied threatening Staley.
page 247 Kidder, Peabody’s deteriorating finances and the sale to GE were described in James B. Stewart, “Cashing In,” Wall Street Journal, May 5, 1986.
page 253 The discussions at the Water Club were described in Frantz, Levine & Co., pp. 318–320.
page 256 Drexel’s contributions to politicians are the subject of Brooks Jackson and Thomas E. Ricks, “Lobbyists, Speaking Fees, Contributions Didn’t Keep Milken from Capitol Hill,” Wall Street Journal, Apr. 28, 1988. The attendance of various senators at the 1986 Predators’ Ball is described in Bruck, The Predators’ Ball, p. 259.
page 257 Milken’s relationship with David Solomon is the subject of counts four and five of the Milken plea agreement. The Finsbury transactions are described in detail in Government’s Milken sentencing memo, pp. 45–51. While the facts aren’t in dispute, Milken rejects the government’s assertion that Milken’s motive was to induce Solomon to purchase securities sold by Drexel. “We steadfastly dispute that assignment of motive and any other suggestion that Michael Milken improperly induced [Solomon] to do business with Drexel. [Solomon] did business with Drexel because Drexel was the principal market maker and underwriter of high yield securities, [Solomon’s] specialty” (Milken’s sentencing memo, pp. 88–89). The text reflects Solomon’s version, which seems amply corroborated by circumstantial evidence.
page 258 The account of the blue notebook is from Peizer’s testimony in the Milken Fatico hearing (see note to p. 517). Lowell Milken’s lawyer, Michael Armstrong, has denied that Lowell was involved in any illegal scheme.
page 261 The quotation is from Kathleen Pender, “The World According to Boesky,” San Francisco Chronicle, May 19, 1986.
page 261 The circumstances of Boesky’s invitation to give the commencement address are described in David Vogel, “How Boesky Advanced the Cause of Equal Opportunity in Scandal,” San Francisco Chronicle, Dec. 15, 1986. Boesky described the speech in U.S. v. Mulheren, Boesky testimony, p. 727.
page 262 The Stone Container and Wickes transactions are described in Government’s Milken sentencing memo, pp. 94–101. Milken denied the allegations,
page 263 Boesky’s renovation project is reported in Al Gordon, “Boeskys’ Dream House Exceeding Their Grasp,” Newsday, Dec. 16, 1988.
page 263 The quotation is from a copy of the letter obtained by the author.
pages 264–265 The description of the Guterman bar mitzvah is from Georgia Dullea, “Coming of Age on the Ocean,” New York Times, Sept. 16, 1986.
page 265 The date of Boesky’s surrender to federal authorities appears in U.S. v. Mulheren, Boesky testimony p. 630.
Book Two. The Chase
Chapter 9
page 269 A copy of the Caracas letter was obtained from Merrill Lynch.
page 269 The account of Merrill Lynch’s handling of the letter is from interviews with Merrill Lynch officials involved.
page 272 The Fedders affair was the subject of Brooks Jackson, “Storm Center,” Wall Street Journal, Feb. 25, 1985. Fedders resigned after the article was published.
page 274 The Campbell deposition is discussed in James B. Stewart, “Tracing a Scandal,” Wall Street Journal, July 15, 1987.
page 275 The quotations are from the transcript of Campbell’s three-day deposition, released by the SEC.
page 276 The involvement of the Bank Leu officials Meier and Pletscher is discussed in considerable detail in SEC v. Dennis B. Levine, 86 Civ. 3726 (RO), Memorandum in Support of Plaintiff’s Application for a Temporary Restraining Order (hereafter cited as “SEC memo”), pp. 8–10, and Supplemental Memorandum of Plaintiff SEC in Support of Application for a Preliminary Injunction (hereafter cited as “SEC supplemental memo”), pp. 17–19. SEC lawyer Leo Wang elaborated in a deposition released by the SEC. Pletscher also gave two days of depositions on his and Meier’s involvement.
page 277 The quotation “you are the smart guys . . . ” is from Pletscher’s deposition transcript, second day, p. 5.
page 282 Levine’s instructions to destroy the records were described in Pletscher’s deposition and in Frantz, Levine & Co., p. 195.
page 282 The quotations are from Pletscher’s deposition.
page 283 The Knopfli quote is from Pletscher’s deposition.
page 285 The SEC roundtable discussion is described in Frantz, Levine & Co., pp. 233–235. The quote is from a transcript of the proceedings released by the SEC.
page 290 The case involving the Morgan Stanley investment banker is U.S. v. Newman. Stockbroker James Newman was convicted of insider trading in 1983, and the decision, which established the “misappropriation” theory of insider trading, was upheld on appeal. Newman’s co-conspirators, Morgan Stanley investment banker Jacques Courtois and Kuhn, Loeb investment banker Adrian Antoniu pleaded guilty.
page 292 The circumstances of the wire transfer were first reported in Stewart, “Tracing a Scandal.”
page 294 Levine’s presence at the Top Gun screening was described in Frantz, Levine & Co., p. 328. The engagement appears on his appointment diary released by the SEC.
page 294 Levine’s attempts to transfer his funds are described in SEC v. Levine, SEC memo, pp. 9–10, and SEC supplemental memo, p. 19.
page 303 Reich’s reaction to Levine’s arrest and his trip to Los Angeles are described in Brill, “Death of a Career.”
Chapter 10
pages 305–306 The Flumenbaum quote is cited in SEC v. Dennis Levine, transcript of proceedings, May 22, 1986, p. 72.
page 312 Levine’s guilty plea was described in “Levine Pleads Guilty,” Wall Street Journal, June 6, 1986. The resolution of the SEC case is set forth in SEC Litigation Release No. 11117, June 5, 1986.
page 314 The Cecola plea to two counts of filing false tax returns was reported in The Wall Street Journal, Dec. 23, 1986.
page 314 Wilkis’s guilty plea to four felonies was reported in The Wall Street Journal, Dec. 23, 1986.
page 316 Reich’s interrogation by his partners is described in Brill, “Death of a Career.”
page 318 Levine’s sentencing was reported in The Wall Street Journal, Feb. 23, 1987.
page 318 The receiver’s suspicions are set forth in U.S. v. Levine, Second Report of the Receiver.
page 319 Boesky’s poolside meeting with Milken is described in Government’s Milken sentencing memo, p. 101.
page 319 The discussions between Boesky and Mooradian were described in Hertzberg, “The Informer.”
page 328 Boesky’s assets are described in a copy of the Boesky accounting obtained by the author.
page 331 Copies of the government’s plea agreement with Boesky, Sept. 18, 1986, and the SEC’s settlement agreement, Sept. 17, 1986, were released by the government.
page 333 Boesky’s disclosures about his role in Guinness, passed on by the SEC to British authorities, rocked the London financial world. Boesky revealed that he had helped Guinness PLC, the giant brewer, manipulate stock prices during its 1986 bid for Distillers PLC. Ernest Saunders, former chairman of Guinness, was sentenced to five years in prison for what the judge called “dishonesty on a massive scale.” Among those implicated was Boesky’s friend and investor,
Gerald Ronson, who was sentenced to a year in prison. See The Wall Street Journal, Aug. 29, 1990.
page 336 The transcripts of the Boesky-Milken discussions have not been disclosed, and the quotations in the text are based on the memories of participants or of people with access to the transcripts. The government has provided this description: “In that conversation, Milken was intent on providing Boesky with a false explanation for the $5.3 million payment. Milken and Boesky also assured each other that their subordinates would be reliable in the face of a governmental investigation” (Government’s Milken sentencing memo, p. 103, fn. 39).
page 339 The text of Boesky’s remarks to his staff was released by his lawyers when his agreement was announced.
page 340 The Nov. 14 ticker copy was obtained through Dow Jones News Retrieval.
page 340 Peizer’s reaction to the Boesky news was described in his Fatico testimony (see note to p. 517). Milken’s reaction was described by Peizer and Dahl in their testimony. Milken’s spokespeople dispute the timing of Milken’s reaction, insisting that Milken didn’t go into Lowell’s office until approximately 4 P.M., two and a half hours after the Boesky announcement.
page 341 Dahl testified to the running water incident in his Fatico testimony (see note to p. 517).
page 342 Peizer described his disposal of the blue ledger in his Fatico testimony (see note to p. 517). Spurge’s role in any destruction of evidence has been the subject of government inquiry, but she hasn’t been charged with any wrongdoing.
page 342 Maultasch’s trip and his exchange with Milken were described in Maultasch’s Fatico testimony (see note to p. 517).
page 344 The Wall Street Journal stories discussed are James B. Stewart and Daniel Hertzberg, “Spreading Scandal,” Nov. 17, 1986; “SEC Is Probing Drexel on ‘Junk Bonds,’” Nov. 18, 1986; and “Grand Jury Is Said to Be Probing Drexel,” Nov. 19, 1986. More than any others, these stories triggered a Drexel and Milken campaign to discredit the Journal’s reporting and to accuse the government of leaking to the Journal—a campaign which continued even after Drexel and Milken had filed guilty pleas.
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