NEW YORK -- Investigators are piecing together evidence that the wealth amassed by former junk bond king Michael Milken from his association with Drexel Burnham Lambert is at least hundreds of millions of dollars greater than the staggering amounts already disclosed.
Federal prosecutors disclosed more than a year ago that Milken, 44, received direct compensation from Drexel of $1.1 billion from 1984 through 1987, including $550 million in one year. Those amounts alone made him the highest-paid employee in America.
But individuals analyzing hundreds of private partnerships set up at Drexel to benefit Milken, family members and Milken's favored employees estimate that Milken personally also received at least $1 billion from those partnerships. A portion of that would represent Milken's initial investment. But accountants and investigators say that most of the Drexel employee partnerships were extremely profitable, with partners in many cases receiving back hundreds or thousands of times their initial investments.
Detailed records obtained by the Los Angeles Times for just 12 of nearly 200 partnerships in which Milken and family members are known to have held an interest show that Milken personally received at least $470 million from 1981 through 1988. His brother, Lowell, received at least $84 million. The 12 do not include some of the largest and most profitable partnerships Milken is known to have invested in.
The existence of the private Drexel partnerships has been known for some time, mainly due to a continuing investigation by the House subcommittee on oversight and investigations. Earlier disclosures about the partnerships raised questions of improprieties, because Milken and other Drexel employees were allowed to have huge stakes in the profits of corporate buyouts Drexel was financing. The partnerships were given investment opportunities that were available to no one else and were not disclosed publicly. In some cases, the partnerships appeared to profit at the expense of Drexel customers and at times to the detriment of Drexel itself.
In the buyouts of Storer Communications and Beatrice Inc. in the mid-1980s, for example, the Milken partnerships secretly kept extremely valuable warrants instead of making them available to Drexel's customers.
But, so far, little has been made public about the size of the partnerships and the amounts of money distributed from them.
Although it may be months before a full assessment is available of Milken's personal stake in the partnerships and his profits from them, one individual with direct access to partnership information said a $1 billion estimate of Milken's gross receipts .. from them is almost certainly conservative. "I think you're extremely safe if you estimate a billion, as weird as that number sounds," he said.
A source with knowledge of the partnerships estimates that the value of assets currently remaining in the partnerships is between $500 million and $600 million. The relatively small amount is said to reflect the sharp decline of the junk bond market and securities markets in general.
Milken, who headed Drexel's Beverly Hills, Calif.-based junk bond department, resigned from the firm in June 1989 and pleaded guilty last April to six felony counts. Drexel, which also pleaded guilty to six counts, collapsed last February into bankruptcy proceedings.
Milken is due to be sentenced this month, perhaps as early as next week, although as of last Friday a date still hadn't been set. Milken has already agreed to pay $600 million in penalties.
The convoluted records of the Drexel partnerships are being scrutinized intensively not only by the House subcommittee, chaired by Rep. John D. Dingell, D-Mich., but by a horde of private lawyers, bankers and accountants. Creditors in the Drexel bankruptcy are attempting to trace the flow of money through the partnerships and are weighing whether they have legal grounds to try to recoup money from individual partners and the remaining partnerships themselves.
Ken Lerer, Milken's spokesman, refused to answer any specific questions about Milken's profits from the partnerships.