Indictment and sentencing
In March 1989, a federal grand jury indicted Milken on 98 counts of
racketeering and fraud. The indictment accused Milken of a litany of misconduct, including insider trading, the concealment of the real owner of a stock, a practice known as stock parking,
tax evasion and numerous instances of repayment of illicit profits. The most intriguing charge was that Boesky paid Drexel $5.3 million in 1986 for Milken's share of profits from illegal trading. This payment was represented as a consulting fee to Drexel. Shortly afterward, Milken resigned from Drexel and formed his own firm, International Capital Access Group.
[6][9]
This was one of the first times RICO was used against an individual with no ties to
organized crime. Milken originally planned to fight the charges against him, hiring one of
Ronald Reagan's former campaign aides, Linda Goodson Robinson (the wife of
American Express president
James Robinson) to launch a public relations campaign prior to the trial. Milken and other Drexel figures hired
Edward Bennett Williams as their attorney. Williams was well known for representing
Watergate figures as well as major Mafia figures including
Frank Costello. After Williams died of cancer, Milken's handlers hired various other attorneys and his case became more difficult.
On April 24, 1990, Milken pleaded guilty to six counts of securities and tax violations.
[5] Three of them involved dealings with Ivan Boesky to conceal the real owner of a stock.
[10]
- Aiding and abetting another person's failure to file an accurate 13d statement with the SEC, since the schedule was not amended to reflect an understanding that any loss would be made up.
- Sending confirmation slips through the mail that failed to disclose that a commission was included in the price.
- Aiding and abetting another in filing inaccurate broker-dealer reports with the SEC.
Two other counts were related to tax evasion in transactions Milken carried out for a client of the firm, David Solomon, a fund manager.
[10]
- Selling stock without disclosure of an understanding that the purchaser would not lose money.
- Agreeing to sell securities to a customer and to buy those securities back at a real loss to the customer, but with an understanding that he would try to find a future profitable transaction to make up for any losses.
The last count was for conspiracy to commit these five violations.
The estimated injury for all counts combined was, by the judge's account, $318,000 and by the U.S. Probation Office's account $685,000.
[11]
As part of his plea, Milken agreed to pay $200 million in fines. At the same time, he agreed to a settlement with the SEC in which he paid $400 million to investors who had been hurt by his actions. He also accepted a lifetime ban from any involvement in the securities industry. In a related civil lawsuit against Drexel he agreed to pay $500 million to Drexel's investors.
[12][13] In total this means that he paid $1.1 billion for all lawsuits related to his actions while working at Drexel.
