The Exchanges

Q So a couple of years in, your role shifted, and so why don't you take me to what happened?

A One afternoon on a Friday, November of 1986, when the market closed, somebody came down to my office and says, did you see what just came across the tape? Ivan Boesky is pleading guilty to a crime, and he's paying a huge Penalty, which really is huge news. I had worked on a transaction where we had invested in a financing that Drexel did for Boski the prior March. And I got a phone call that there were federal marshals downstairs and others serving subpoenas that related to that transaction and referred to a statute I'd never heard of called RICO. They came from the U.S. Attorney in Southern District in New York. This was something I had no prior relationship with, no prior knowledge about, and it changed our lives dramatically.

AI assessment note: “One afternoon on a Friday, November of 1986, when the market closed”

Q What was he like as both a kid and in college?

A He was always an outgoing guy, a leader. People were drawn to Mike. So he had a competitive nature, but he was always easy to get along with and very popular in school. He was head cheerleader in high school. I think he was the prom king at his prom, but he didn't have any airs about him. So you never saw that part of him. He did really well in college. The story people like to tell is when he was in his last quarter at Berkeley, needed whatever it was, 10 units to graduate. And he had worked at Touche Ross, the accounting firm in Los Angeles during the summer, and he stayed in LA and continued to work for the accounting firm during that quarter. He came up a week before finals, bought the books, read the books, looked at notes of other people he knew and passed all his classes. So he was always a person that was easy to admire, and he worked hard.

AI assessment note: “He was always an outgoing guy, a leader... He did really well in college.”

Q What happened from there in Mike's involvement in all this?

A Well, the first thing we did is we realized that this was something that we didn't know anything about. And we needed to get advice from people that didn't know something about it, and it was late in the afternoon that Friday, November 14th, that we gathered, and one of the names that Mike had mentioned that he had met before was Edward Bennett Williams, who at the time was probably the best known defense lawyer in the country. He was one of the founders of the major law firm that still exists today, Williams and Conley in Washington, D.C., We reached out and we got him on the phone to try to talk to him about what should we do? What are we thinking about? I had a good conversation with him. We called other lawyers we knew to get recommendations since this was all centered in Washington, D.C. and New York City to get names of lawyers on the East Coast and planned that next Monday to be in New York and start interviewing lawyers.

AI assessment note: “one of the names that Mike had mentioned that he had met before was Edward”

Q So if you circle forward now to Where was Mike at the time, and what was Drexel when you joined?

A Mike had moved from New York to Los Angeles in 1978, and moved his whole department with him. So you knew at the time that he was successful in what he was doing, since he was allowed to move a department. He and his wife were both from Los Angeles. I think they always wanted to move back to LA, and his father had cancer. He had two children at the time, two or three children, and he wanted his Father to get to know his grandchildren. So he did come out at that time. I think Drexel was starting to take off. I think, 78, late seventies was around the time that they started the new issues of high yield securities for companies that couldn't get investment grade ratings. So Mike was known as being pretty successful as he moved back to Los Angeles in 78. By 83, there was a lot of articles written. I think there was a cover story in Forbes magazine. Mike himself always was media shy. I don't think he ever cooperated or gave an interview in any of these articles, but clearly a lot of transactions were getting done. I, as a lawyer, from the time they moved out to 83, started doing more transactions of investments that Mike and other people in the department were making. So it was natural when they asked me, do you want to leave the practice of law? We're putting together a small consulting group to help structure and oversee our investments. I was ready to do it.

AI assessment note: “Mike had moved from New York to Los Angeles in 1978... Drexel was starting to take off”

Q So it sounds like On request, you're providing a lot of information, but you don't even know at this point in time what they're accusing Mike of or Drexel of. Is that right?

A Right. We knew it was an insider trading investigation. Earlier that year, a guy named Dennis Levine had pled guilty to insider trading. He actually was working at Drexel in their corporate finance department at the time, but most of the things he pled guilty to was related back to a time I think he was at Kidder Peabody. He apparently had put together a group of people, of lawyers, other bankers. They were exchanging information and trading on this information on deals that they knew were coming up, and he pled guilty. You never knew he was under investigation until the day he pled guilty. And then come along November that day, Ivan Boski pled guilty. You didn't read any articles that there was an investigation, but he pled guilty. And again, it was about insider trading. Then you got our subpoenas. Don't forget the other two cases. It wasn't in the newspapers till they made their deal till they pled guilty. We're in the newspapers almost from day one. So we knew that we weren't involved in insider trading, but we started looking at every transaction The transaction that Boeski might have been involved in, any transactions he might have been involved in with Drexel, and try to figure out what somebody might be saying happened. From there, when more subpoenas came in, they may be looking at something else. All we would know, they'd be looking at XYZ transaction. Then we'd pull …

AI assessment note: “Right. We knew it was an insider trading investigation.”

Q So how did the investigation proceed from there?

A It took a long time. We started this in the late 1986. We're getting all these, as I say, leaks to the press going on. You would find over a period of time that different witnesses that they would bring into the grand jury. Now, the only defense you have, if you go into the grand jury, Is you could refuse to testify under the fifth amendment. You could say, I'm not going to testify, but they can make you testify if they give you immunity. It's another major weapon that the government has. So if they say that as long as you tell the truth, nothing you say will we use against you personally, we're going to give you immunity for prosecution for anything you tell us as long as it's true. They started giving people immunity. Some Drexel clients, some Drexel employees. We didn't necessarily know what they were saying, if their lawyers would tell us. And we saw in the investigation was moving in multiple directions. It wasn't just insider trading anymore. There was this whole idea of securities parking. Did you sell security to somebody with an agreement to buy it back so that they really weren't at risk? Did they sell you a security with an understanding that you really didn't own it? All these theories that had not really been subject to prosecution before we were learning about. More and more people were making their deals to testify for the government, and we didn't always know wh…

AI assessment note: “We saw in the investigation was moving in multiple directions. It wasn't just insider trading”

Q You'd like to think that knowing they have that power, they wouldn't proceed in such a way unless they felt like they were doing their job and seeking truth. So what were their motivations? In going after Mike, if in fact you don't think he did anything wrong.

A Well, they made a deal with Ivan Boski, and they made a deal predicated on him making other cases for them. And the prime case that he was going to give them was Michael Milken because of what he'd accomplished and, and what his position was in the industry at the time. So they had an incentive to say, well, we didn't make a bad deal. They had an incentive to say that what this guy was telling them must be true. And if we could get other people to tell pieces of it or whatever else, it must be true. I think that's how they're trained. They're trained to say, we made a deal with this guy. He said this guy did this. We bought onto it. Let's find out if he did it. And by the way, it's in our interest to find that he did do it. And what's he doing in our office anyway? We didn't tell Ivan Boski to do business with them. They did business together. So I think the motivation is That's how they get ahead. The prosecutor, as I quote him in the book, who came to my class later on, said that the way that prosecutors get paid is not in money. It's in being successful, and that helps our career. The more notice the case gets, the more important it is for us to be successful. And the problem is, Ted, at least that I see, is they should be trained to ask themselves, what if we're wrong? We're dealing with human beings. This guy has a wife. All these people do. They have children. If we're wr…

AI assessment note: “So I think the motivation is That's how they get ahead.”

Q This happened And Mike served his sentence a long time ago, thirty-something years ago. I'm curious, why tell the story in your book now, and why did it take so long to decide to do this?

A It's an excellent question. It's something I've been thinking about for a long time, and once you don't do it immediately, just all of a sudden has a way of just accelerating. So initially, I wasn't going to do anything because these other books were out there, and Mike had just served a sentence, or was even serving a sentence at the time, And I felt we were just up against a tidal wave. I was going to let time pass. And then as time passed, and some of the same lies kept getting repeated, you went to jail for insider trading, or you went to jail for fraud in the bond, none of which is true. I said, you know what? I was there. No one's ever written that was there. I'm going to write something myself. So I decided that the best way for me to write is if I could teach a class on the subject, it would cause me to The discipline of gathering all my notes, all the information, and getting it organized. And about 10 years before I wrote the book, a friend at Stanford said, I'll do this class with you, and we taught at Stanford Law School, pretty respected law school, and the class was really well received, and it got me all my information, plus the prosecutor came to the class, and I transcribed what he had to say, and other government and other lawyers came, and I had all the information, and I was going to sit down and start writing the book. A few more years went by. I taught the…

AI assessment note: “I was going to let time pass. And then as time passed, and some of the same lies kept getting repeated”

Q So what were those violations that Mike plead to that you said hadn't really ever been prosecuted before and might not even be regulatory violations?

A Take one would be aiding and abetting another person in filing a false 13 D. So what did that involve? Mr. Boski owned stock in a company called Fishback, and he had more than a five percent interest, and he filed with 13 D as he was required to do. He complained to Mike that it was a bad deal, because he'd asked Mike, what did Mike think about it? Mike says, it might be a good deal, because a client of Drexel's had made a public statement that he wanted to acquire this company. So it was in play. And He never acquired it. So most of you complained to Mike that he never acquired it. Mike's comment, well, you know what I know. I didn't give you any inside permission. It was not my fault. And just to get him off the phone one day, he said, and I know this sounds kind of funny, but he said, fine, if you actually lose money on that, I'll make it up to you. I guarantee he didn't have any idea how he'd make it up to him. The idea being that, hey, someday I'll find a good security, something that I think is valuable. I'll recommend it to you legitimately and everything else. But anyway, the violation was since a 13 D is supposed to disclose everybody who has an interest in the security, theoretically, Mike Milken saying, I'll make it up to you means he had an interest in the security. So Boski should have amended his 13 D. So these are the kind of things he pled to. Do you really thin…

AI assessment note: “Take one would be aiding and abetting another person in filing a false 13 D.”

Q What do you hope happens by telling this story now?

A First and foremost, that historically there is a record of what really happened by somebody who was there firsthand and knows what had happened. I know for a fact that there are business schools that teach finance that when they talk about this period will recommend a book like A Den of Thieves or something else. I want there to be another resource. Certainly don't have the power to eliminate other resources, but I want there to be really a true historical record. I think Mike deserves it, and his family deserves it. He's got children. He's got grandchildren. I think there needs to be an historical record. Number two, I would like to see the process viewed in a way so that there's downside for abusing the process on behalf of prosecutors, so they at least think about what I said earlier. What if I'm wrong? Right now, you go through a criminal process, and you go to trial, and you get acquitted. You still lost. There's a famous case, I think the guy's name was Donovan, his secretary of labor. He was accused of a crime, went to trial, and was acquitted. And when they asked him afterwards, how do you feel now? His response was, tell me where I go now to get my reputation back. Because people believe the headline. They never know the rest of the story. They just remember, oh, that person was indicted, must have done something. So if you're under a criminal investigation, you have n…

AI assessment note: “First and foremost, that historically there is a record of what really happened”

Q So how does that work? Is there in the process of getting documents and talking to people? Is it they never interact with Mike, who is the subject of what became the indictment?

A They never do. Certainly as a lawyer, well, you know what? We want to cut this off, Mr. Prosecutor. Why don't we bring our client in to meet with you, and you'll see that he's telling the truth. So you can do that. The problem is nobody would do that because the risks are too great. The risks are too great that they won't believe him, but they'll take something that he said, and they'll use it against him. And now you're disclosing to them your defense. The only thing that they don't know at this point is what your defense is. So now you're taking the person that has all the power, who's trying to destroy your life, and you're telling them Whatever you want to tell them, they're not telling you anything, and so nobody does that. To me, that's the flaw of the system. I really think it would work a lot better if there was a method for people to come in and talk and get to know each other. They do have different things. There was something they called Queen for a Day, where you could come in and have immunity for one day. But that doesn't mean they can't use it against you later because you only have immunity if you tell the truth. And if they learned something later and you didn't tell them the truth, they can use that against you. So nobody ever does that. Nobody ever brings the witness in early on when they are really the subject of the investigation.

AI assessment note: “They never do.”

Q You've mentioned this RICO hearing. What is RICO?

A RICO is the, I think it's called Record Hearing Investigation Corruption Whatever act. It's a act that was passed by Congress that was really intended to give prosecutors even greater powers when it came going after organized crime. Under RICO, if you're a criminal enterprise, They could freeze all the assets of the enterprise during the investigation, and you have to forfeit all those assets if you're found guilty. The amount of time that you would have to spend in prison for every count of RICO you violated is much higher. So in a securities fraud, it's five years. RICO, it's 20 years. So it's a very powerful statute that really was not designed to be used against a financial firm. In fact, when I talked to Ed Williams that first day in November of 1986, and I read him the subpoena, and he heard it had a RICO in it, he says, it doesn't surprise me. That's not what RICO's for. But Rudy Giuliani, who is a U.S. attorney for the Southern District of New York, is the biggest piece of political meat I have seen since Tom Dewey. And for those that don't remember Tom Dewey, he was U.S. attorney for the Southern District of New York. And he used his position for a political career. He went on to be governor of New York, and later ran for president of the United States, almost got elected against Harry Truman in 1948. Rudy Giuliani clearly had a political ambition, became the mayor of …

AI assessment note: “It's a act that was passed by Congress that was really intended”

Q We think of the legal system as innocent until proven guilty. And what you're describing sounds like a bunch of gathering information up until these cases or indictments are shown to you. You don't even know what's happening. Is that how the process works?

A Right. You don't get any information from the government as to how they're doing it. And at this point in a high profile, highly publicized case, You're really not innocent in the court of public opinion. The articles are about, they must have done this, they must have done that. The expectation now is that you did something. The other thing I learned is that the Southern District in New York, they consider themselves the prime office of the Justice Department, and they can't be wrong. Their job is to protect their reputation. So once they allowed the information to be leaked, That this investigation was heading towards an indictment against whether it's Drexel or Michael Milken or whoever else, they can't be wrong. They're going to prove that they're right, and they're going to defend themselves. One of the reasons I wrote the book is so people understand that today the process is no different than the process was when we went through it, and the government has tremendous power. Prosecutors were given this power so they could put away bad guys. But their job is to see that justice is done. Their job is to seek the truth. And as was said by the Supreme Court, it's not to necessarily win a case. It's to see that the guilty are punished and the innocent are not. That's their job. What I found was these young guys, they're not bad guys. They're young attorneys. They're aggressive.…

AI assessment note: “Right. You don't get any information from the government as to how they're doing it.”

Q When Drexel settled, what did they admit to, to the government in that?

A They admitted on certain of the transactions that were in the indictment. They said that we don't have the information to dispute it. And therefore, we are willing to plead to have done, I don't remember the counts exactly what it was. They paid a very large fine. I think they paid six hundred and fifty million dollars out. Part of that went as a criminal penalty, and part of that went to as an SEC disgorgement fund, because they settled with both the SEC and the U.S. Attorney, because they had to do with It could have been some of the transactions. It could have been a 13 D violation. I don't know. I mean, a lot of this stuff was very regulatory, but the biggest issue was the fact that Mike was now gone from Drexel. He wasn't there anymore. And the firm had an interest in being cooperative with the government. In fact, had a requirement to cooperate with the government. And so where the firm had been fighting the charges before, it was now cooperating on it. All the forces were coming against us.

AI assessment note: “They admitted on certain of the transactions that were in the indictment.”