Disowning A Billion-Dollar Baby

By Barbara Rudolph

Michael Milken, his wife and three children spent the day strolling through midtown Manhattan, looking for all the world like just another clan of holiday shoppers. But for the workaholic Milken, the idyll ended when he received some distressing news: the company that stood by him through almost two years of Government investigations had abruptly decided to settle its case with prosecutors, effectively cutting him adrift to fight his own battle. The junk- bond king, 42, who has created billions of dollars in revenue for Drexel, made hundreds of millions for himself and ranks as the most influential financier of the decade, rushed to the offices of his attorneys. In less than an hour, the group issued a statement: "Michael Milken is not a party to the Drexel settlement. His attorneys are continuing to defend him against any charges that might be brought."

Within a matter of days or weeks, Milken is expected to be indicted on criminal charges for many of the same alleged securities violations described ; in a civil case that the Securities and Exchange Commission filed in September. The SEC accused Milken of, among other offenses, manipulating stock prices to reap millions of dollars in illicit profits and defraud his clients. The lawsuit portrayed Milken as a zealous dealmaker whose disrespect for tradition led him to disregard the law as well. A suburban Los Angeles native who attended Wharton Business School, Milken was the pioneer of junk bonds as a financing technique for midsize companies and later as the potent fuel for takeovers.

Now he is out in the cold. Said one of Milken's friends: "From now on he is on his own -- and as determined to prove his innocence as ever." Milken's defense against criminal charges could be hampered by the Drexel settlement, in part because the firm has promised to cooperate with the U.S. Attorney's probe of his transactions. But Stanley Arkin, a Manhattan attorney who specializes in white-collar crime, says separating the cases could help Milken. Says Arkin: "Milken will now be able to defend just his actions instead of those of 10,000 others."

After years of working 15 hours a day, Milken now spends much of his time preparing his defense. He remains the titular head of Drexel's operations in Beverly Hills, where the firm's junk-bond department is based. But Milken will probably take an indefinite leave of absence as soon as an indictment is handed up.

If Milken chooses to fight the criminal charges, he can afford the legal bills. His net worth is estimated at more than $500 million. Even so, the man who revolutionized the money markets of the roaring '80s could wind up doing prison time in the '90s. Milken could also be slapped with a huge fine or be banned from working in the securities industry. For one who has devoted his life to building and controlling an unprecedented financing empire, that prospect may be the most chilling of all.

With reporting by Frederick Ungeheuer/New York