Milken Trial Produces Fascinating Portrait Of Drexel's Junk-Bond King

NEW YORK - It was the moment before The Moment. The time was 1 p.m. The day was Friday, Nov. 14, 1986. The place was Wilshire Boulevard in Beverly Hills, Calif. Michael Milken was in his element. Seated in the crosshairs of the X-shaped desk in Drexel Burnham Lambert's trading room. Ear glued to a phone. Eyes gazing intently into the video display of a Quotron-type stock ticker.

Then it was The Moment. Terren Peizer, a young Drexel trader seated on Milken's left, was watching his boss as the words that would change both Wall Street and Milken's life forever materialized like tiny ghosts from the dark innards of his stock-quote machine: Ivan Boesky, the ticker said, had confessed to insider trading and become an informant.

Shouts broke out in the trading room. But where the trading desk's X crossed, Milken stammered. ``He lost his train of thought and concentration and started going, `Uh, uh, uh,' '' Peizer said last week in Manhattan federal court, publicly describing the moment of truth for the first time as an anxious Milken looked on. ``And that was it.''

With that ambiguous stutter, Milken began a four-year journey through one of the most massive and bitterly fought probes of financial fraud in the nation's history - a journey now coming to a climax in a pressure-cooked hearing before U.S. District Court Judge Kimba Wood, who is considering Milken's sentence on six felonies to which he pleaded guilty in April. He faces up to 28 years in prison, on top of a $600 million penalty.

The hearing, designed to help Wood assess the prosecution's claims that Milken committed dozens of other crimes, has so far been only partially successful on that front.

But while the press has focused on weak links in the government's criminal case, a two-week parade of witnesses like Peizer has provided a wealth of colorful detail about one-time billionaire Milken,painting a portrait of a man running a department where, virtually under his nose, a massive market manipulation could be prompted by a single telephone call between subordinates; where salesmanship routinely included attempts to cozy up to money managers with job references and by-invitation-only investment opportunities.

In fact, some of the most dramatic testimony has focused on the reactions of Milken and others after the Boesky news flash.

Cary Maultasch, for example, a New York-based Milken aide who hadexecuted some of the illicit deals with Boesky's firm, testified that Milken at times communicated by writing questions in pencil on a yellow pad and then erasing the questions - possibly an indication that Milken feared Maultasch was wearing a concealed microphone.

The shock Boesky Day spawned inside Drexel was, in many ways, understandable. In part, it may have flowed from the crimes that Milken and Drexel have already admitted and doesn't necessarily indicate there were other crimes, as prosecutors have charged.

But in part, it may also have reflected the power the firm - and Milken - had become accustomed to exercising by 1986. Drexel was used to calling the shots, not being a target. And witnesses testifying on charges that Milken masterminded a market manipulation to benefit client Wickes Cos. provided a hint of just how powerful Drexel and Milken were in their heyday as junk-bond financiers for the corporate raiders of the mid-1980s.

When Drexel began competing for the account with bitter rival Salomon Brothers in early 1985, Wickes was just emerging from bankruptcy. The company had plans to rebuild through debt-financed takeovers. It would be a prized client for an investment banking firm, one with the potential to generate huge fees. Salomon was in the lead, testified Drexel corporate finance executive Joseph Harch, until out of the blue long-time Milken friend and corporate raider Saul Steinberg's Reliance Financial Services Corp. announced a takeover bid for Wickes. Wickes chairman Sanford Sigoloff called Harch and demanded a meeting with Milken. Harch set it up.

After a four-hour, one-on-one meeting between Sigoloff and Milken, Drexel had secured a client that would eventually pay more than $110 million in fees.

But the aura surrounding Milken also may have been given too much weight by some of his subordinates, making Milken appear responsible for things he had nothing to do with. Maultasch, for example, acknowledged that it was ``a common practice at Drexel for people to use (Milken's) name without his knowledge'' and that ``when they wanted to get somebody's attention, they would say, `Mike wants us to do this' or `Mike wants us to do that.' ''

The key question in the hearing: Did Milken order the manipulation of Wickes stock? Maultasch said he did it on the orders of Milken aide Peter Gardiner. Maultasch said he had ``no factual basis'' for concluding that Milken ordered it, but in the environment he was working in, assumed and believed Milken was behind it.

Gardiner, on the other hand, said he didn't tell Maultasch to engineer the manipulation. He did, however, say he heard Milken tell traders, ``We're looking for unsolicited buyers of Wickes.'' After Wickes stock closed at the desired $6.12 1/2, Gardiner said, Milken had him check with Maultasch on how many shares he had to place with Boesky, and shared in officewide ``jubilation.''

``Michael smiled,'' Gardiner said. ``I smiled.''

Judge Wood, however, did not smile after hearing Gardiner's testimony. She called it ``fairly ambiguous'' on the question of whether Milken explicitly ordered the manipulation that occurred, or may have meant something less sinister by his comments. And she may also have been troubled by the fact that Gardiner once voluntarily appeared before a grand jury and perjured himself by denying Wickes stock had been manipulated.