TIME: Almanac 1993/TIME Almanac 1993.iso/time/120390/1203201.000

Text File | 1992-08-28 | 6.2 KB | 133 lines

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                                                          BUSINESS, Page 82

A Stiff Term for the Wizard


By sentencing Milken to 10 years in prison, a judge sends a
message that aims to deter white-collar crime

By JOHN GREENWALD -- Reported by Bernard Baumohl and Thomas
McCarroll/New York


    The sobs that shook Michael Milken in Manhattan federal
court last week punctuated the most dizzying fall from power in
modern Wall Street history. They came as federal Judge Kimba
Wood sentenced the financial wizard, whose junk bonds fueled the
epic 1980s takeover wars, to 10 years in prison. Said the
tearful felon: "What I did violated not just the law but all of
my principles and values, and I will regret it for the rest of
my life. I am truly sorry."

    The sentence was by far the stiffest jail term in a
five-year federal crackdown on securities fraud that has so far
netted a dozen major convictions. The big fish included Wall
Street speculator Ivan Boesky, who was fined $100 million for
insider trading in 1986 and sentenced to three years in prison
(he served two). As a condition of his plea  bargain, Boesky
helped prosecutors pursue Milken.

    The severity of the sentence stunned members of Milken's
camp, one of whom had allowed before the sentencing that he
"would consider three years to be too harsh." In its strategy
the defense sought to portray Milken as a concerned citizen who
taught math to inner-city children and donated large sums of
money to charity, while striving to overcome his image as the
personification of Wall Street greed. "Our goal was to make
Michael a human being rather than a symbol," said a Milken
source.

    But chief defense lawyer Arthur Liman may have blundered in
his insistence that Milken's crimes were merely technical ones,
even after the financier pleaded guilty last April to six of 98
counts of securities violations and agreed to pay a record $600
million in fines and restitution.  The defense tactic helped
precipitate an unusual two-week presentencing hearing that
showed Milken's operations at the now defunct Wall Street firm
Drexel Burnham Lambert to have been riddled with unlawful
activities. Significantly, the new testimony did nothing to
refute the government's claim that Milken had encouraged Drexel
employees under him to destroy or remove incriminating
documents. Moreover, Liman's strategy precluded Wood from
crediting Milken for any real remorse. Said Wood: "Your crimes
show a pattern of skirting the law, stepping just over to the
wrong side of the law in an apparent effort to get some of the
benefits from violating the law without running a substantial
risk of being caught."

    How much time will Milken, 44, ultimately spend on ice?
Wood said she will consider reducing the sentence if Milken
cooperates with other government probes of Wall Street before he
enters prison next March. Once he begins his term, Milken can
be eligible for parole at any time. But experts said he would
probably serve at least three years of the 10-year sentence
because of the importance of the case as a deterrent to
white-collar crime. Once Milken leaves the slammer, he will have
to perform 5,400 hours of community service over three years.

    Some legal scholars were as shocked as the defense team by
the length of the jail time. "Wow! I'm surprised," said Harry
First, a New York University law professor who specializes in
white-collar cases. "I was expecting five years just based on
what other people have gotten." Declared Columbia law professor
Harvey Goldschmid: "The message being sent is that you've got to
play within the rules of the game. White-collar crime will be
taken seriously and sentenced in a serious way."

    Wood drove home that point in rendering her decision. While
she acknowledged that sentencing Milken to community service
would permit him "to work productively with others," she
asserted that "a prison term is required for the purposes of
general deterrence." Moreover, she added, Milken had committed
"serious crimes warranting serious punishment and the discomfort
and opprobrium of being removed from society."

    Milken has the right to appeal on grounds that the
presentencing hearing violated his rights by introducing charges
that had already been dropped. But legal experts saw little hope
for that strategy. "There is no right to appeal on the length
of a sentence," says Columbia law professor John Coffee Jr.
"They may try to challenge the constitutionality of the hearing,
but I'm certain they will be unsuccessful."

    Even as Milken heard his sentence, the firm he had built
into a financial powerhouse was under legal siege once again.
Federal regulators earlier this month filed a $6.8 billion claim
against the bankrupt Drexel for allegedly rigging the junk-bond
market and selling bonds to savings and loans before the value
of the IOUs collapsed. The government expects to lose at least
$2 billion on junk bonds that it has taken over from seized
thrifts. Drexel said it would strongly contest the government
claim.

    When he emerges from prison, Milken will remain an
extravagantly wealthy man. At the height of his power, from 1983
to 1987, Drexel paid him $1.1 billion for pioneering junk bonds
and turning them into Wall Street's most lucrative money
machine. Instead of squandering the fortune on yachts and jets,
Milken formed investment partnerships that earned him additional
millions. But riches will not shield Milken from the loss of his
freedom. In an 11-page plea for leniency that he wrote to Wood
last month, Milken acknowledged, "All people, I am sure, have
a fear of incarceration and separation. I am not unique, and I,
too, have those fears."

    It is precisely such fears that Judge Wood intends to
reinforce with her stiff sentencing of Milken, say experts. "We
are dealing here with a theme that resonates very strongly in
American society," says Columbia's Coffee. "It is that the abuse
of responsibility by those in high places will be dealt with
harshly." The government hopes to make the threat of harsh
sentences for white-collar felons the pointed lesson of Michael
Milken's fall.