Taking It All Back, Plus Interest

By Christine Gorman

The indictment was long anticipated, but the size of the proposed penalties was enough to provoke a collective gasp among Wall Streeters. Last week a federal grand jury in Manhattan charged junk-bond king Michael Milken, 42, his brother Lowell, 40, and Bruce Lee Newberg, 31, a former colleague of theirs at the investment firm Drexel Burnham Lambert, with a total of 98 felony counts of stock manipulation, insider trading, racketeering and other crimes. The indictment calls for the three accused to forfeit their total compensation of $1.5 billion for 1984 through 1987 (plus interest of $257 million) and pay fines of $3.7 billion. If convicted on all counts, Milken could face a maximum prison sentence of 520 years.

The most stunning new disclosure was the Government's calculation of Milken's income, which had previously been estimated at a mere $50 million to $100 million annually. But Milken's salary and bonuses actually amounted to $554 million in 1984-86 and an additional $550 million in 1987, the indictment says.

Milken's unprecedented income was the result of his employment contract with Drexel, where he has been the firm's biggest source of profits as head of its Beverly Hills-based junk-bond department. Milken almost single-handedly created the junk-bond market, which has grown from $1 billion in 1981 to $180 billion last year. His downfall began three years ago, when arbitrager Ivan Boesky, collared on insider-trading charges, began singing to prosecutors about alleged stock-fraud schemes he carried out with Milken and Drexel. Last December Drexel struck a deal with prosecutors that called for the firm to plead guilty to six felony charges and pay $650 million in fines. Drexel also said it would withhold $200 million in compensation owed to Milken for 1988.

Under last week's racketeering charges, the Government can freeze the Milken brothers' assets even before they are tried. Prosecutors are expected to ask the investment bankers to post a $1 billion bond to prevent such an asset seizure. Last week Milken said he would take a leave of absence from the firm to fight the charges. Said he: "After almost 2 1/2 years of leaks and distortions, I am now eager to present all the facts in an open and unbiased forum."

As a defense tactic, Milken's lawyers will probably attack Boesky's credibility because he received a reduced charge in return for his testimony. They could also challenge the constitutionality of the Racketeer Influenced and Corrupt Organizations law, the statute under which Milken has been charged. Some legal experts believe the law, originally designed to combat organized crime, gives prosecutors unfair leverage in white-collar-crime cases.

With reporting by Frederick Ungeheuer/New York