A DECADE AFTER HE ALLEGEDLY looted$125 million from the Washington state pension fund, Michael Milken's last reimbursement check may finally be in the mail. The former Beverly Hills junk-bond king is shortly expected to pay the remaining $150,000 he and his investor group owe the Washington State Investment Board as part of a larger 1995 federal court settlement. The US lawsuit, brought by hundreds of investors around the globe, arose from the 1980s insider-trading scandal that sent Milken to prison and brought down his financial house, Drexel Burnham Lambert.
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But greed still seems good for the man who personified Wall Street avarice. According to newly obtained state documents, the state is getting back barely 1 cent for every dollar Milken and his partners may have swindled from its retired public employees. Though Washington officials once denied the loss exceeded $100 million, court papers now show they claimed $125 million in losses from Milken's "stock-stripping" scheme. After costs and attorney fees, the fund that benefits teachers and other state retirees will get just $1.5 million—less, even, than one Seattle law firm earned for helping arrange the settlement.
Milken, meanwhile, was allowed to keep an estimated $500 million of his fortune after he pleaded guilty on the six unrelatedfelony charges for which he was sentenced to prison for 10 years (and served less than two). His parole ended last month, shortly after he paid $47 million to settle a new federal securities violation. Now he is an inspiring example to budding white-collar criminals: He may already be a billionaire again. Forbes reported two years ago that he was worth more than $700 million.
The Investment Board, entrusted with up to $18 billion in state pension, insurance, and land-grant funds, is nonetheless pleased with the outcome. "With a case this big and complicated," says Assistant Attorney General Jeffrey Lane, "the board was happy to get any money back." Its $125 million claim was one of 180 cases accusing Milken and his partners of misappropriating stock options. The 1991 civil suit, filed a year after his criminal conviction, accused him of conspiring to steal stock warrants (options to purchase stocks or other equities). These were to be offered as "sweeteners" to potential investors Milken was lining up for the New York investment firm Kohlberg Kravis Roberts & Co. (KKR).
Milken acted as an agent for KKR and, indirectly, its clients, including the Washington board. He claimed to be giving away the equity sweeteners to promote bond sales, but the civil suit alleged he kept them for himself through dozens of front companies. The state board, along with banks and insurance companies who invested through KKR, claimed they lost billions to Milken et al. But they wound up splitting a mere $1.3 billion pie. Once the funds were parceled out, documents show, the Washington board received an award of $1.77 million—$1.51 million after attorneys' fees, of which Milken has so far paid $1.36 million.
About $266,000 went to the Seattle law firm of Hagens & Berman, without whom the state might have gotten nothing. Worried about the statute of limitations, class-action specialist Steve Berman moved independently of the state board in filing suit for fund members, hoping for $1 billion in damages. Milken's stock-stripping scheme was "hardly a secret," Berman noted. It had been revealed in a book, Den of Thieves, and brought up at Milken's 1990 criminal trial for market rigging. When the board and KKR took no action, Berman sued them too. Eventually, both joined in his lawsuit, which Berman took on contingency. He gets about 15 percent of the retirement fund's award. But by taking on more plaintiffs after the suits were consolidated, he received at least $2.5 million from the apportioned federal settlement.
MILKEN, NOW 51, spent 22 months in prison and was released early after ratting on other security violators. Skeptics assert he is remaking his bad-boy image with education grants and donations such as $5 million promised to the University of Washington for prostate cancer research. Milken, who has prostate cancer, recently settled a $47 million civil case brought by the Securities and Exchange Commission for violating his lifetime ban from the market when he acted as a consultant on such megadeals as MCI's investment of $1 billion in News Corp. "The last thing in the world, besides more cancer cells, that I'm interested in, is in giving more depositions," he said afterward.
Though the once and future billionaire's final check is a few months past due, the state isn't calling in the collection goons just yet. "It's probably just a court processing problem," says Assistant Attorney General Lane. "We assume he'll pay."
The Milken Institute - Milken's home page