Den of Thieves Read online

  Reviewers’ Praise for Den of Thieves:

  “A must read. . . . There is intrigue, suspense, mystery, crime, penance and repentance. Careers rise and fall. The players are fascinating. . . . James Stewart recounts much that we need to know.”

  —New York Law Journal

  “Presents in one eye-opening saga what the multitudes of news reports only could hint.”

  —St. Petersburg Times

  “As good a book on Wall Street as I have ever read. . . . It is a fine, spicy tale. But to stop at that is to miss the book’s importance: it at long last gives us a full and true record of systemic criminal behavior in the financial markets.”

  —Michael Thomas, The New York Times

  “Packed with scenes of high drama, the narrative often moves at breakneck speed . . . a wealth of fascinating minutiae.”

  —Business Week

  “Fascinating . . . the most damning evidence yet compiled about why there will be no heroes among the 80’s moneymen . . . a masterpiece . . . will stand as the definitive history of the financial depredations of the decade . . . a work of reportage verging on history.”

  —The New Republic

  “A rollicking account of the insider trading and market manipulation scandals of the 1980’s.”

  —Los Angeles Times

  “Stewart’s tale is like a novel you can’t put down but wish would end because it is so disturbing . . . It’s a story of the decade—a revealing, disturbing tale of what can happen when greed runs rampant.”

  —The Seattle Times

  “A fascinating account of the financial scandals that culminated in 1990. . . . Blends narration and exposition so that we can follow the intricacies of finance and financial law without effort.”

  —The New Yorker

  “As The Wall Street Journal reporter who covered the story, Stewart was uniquely situated to write this book, which will doubtless become the standard work. He gained an extraordinary grasp of the names, events and mind-numbing complexities.”

  —The Houston Post

  “The definitive account of the insider-trading scandal.”

  —Chicago Tribune

  “[Stewart] delivers the collection of oddballs, dirtbags, and greed-heads with a sturdy moral sense, always sensitive to the ambiguities of the events he describes.”

  —Fortune

  “Den of Thieves is the best book so far on the Whoring Eighties.”

  —Newsweek

  “Battling through shrouds of secrecy, Mr. Stewart has done a masterful job of linking together the chief players in this lurid drama.”

  —The Economist

  “If you doubt the culpability of this crew, get thee to a bookstore. Stewart’s exhaustive research proves that Levine, Siegel, Boesky, Milken and a busload of their colleagues were nothing more than high-priced thieves.”

  —The Miami Herald

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  Contents

  CAST OF CHARACTERS

  PROLOGUE

  BOOK ONE. Above the Law

  CHAPTER 1

  CHAPTER 2

  CHAPTER 3

  CHAPTER 4

  CHAPTER 5

  CHAPTER 6

  CHAPTER 7

  CHAPTER 8

  BOOK TWO. The Chase

  CHAPTER 9

  CHAPTER 10

  CHAPTER 11

  CHAPTER 12

  CHAPTER 13

  CHAPTER 14

  CHAPTER 15

  EPILOGUE

  CHRONOLOGY

  ACKNOWLEDGMENTS

  PHOTOGRAPHS

  ABOUT THE AUTHOR

  NOTES AND SOURCES

  PHOTO CREDITS

  INDEX

  FOR JANE, MY SISTER;

  MICHAEL, MY BROTHER;

  AND FOR KATE

  And Jesus went into the temple of God, and cast out all them that sold and bought in the temple, and overthrew the tables of the moneychangers, and the seats of them that sold doves.

  And said unto them, It is written, My house shall be called the house of prayer; but ye have made it a den of thieves.

  MATTHEW 21:12-13

  King James Edition

  Cast of Characters

  As crime on Wall Street neared its climax, late 1985.

  AT KIDDER, PEABODY & Co., New York

  Martin Siegel, investment banker

  Ralph DeNunzio, chief executive

  Al Gordon, chairman

  John T. Roche, president

  Robert Krantz, counsel

  Richard Wigton, head of arbitrage

  Timothy Tabor, arbitrageur

  Peter Goodson, head of M&A

  John Gordon, investment banker

  Hal Ritch, investment banker

  AT IVAN F. BOESKY CORPORATION, New York

  Ivan F. Boesky, arbitrageur

  Stephen Conway, investment banker

  Lance Lessman, head of research

  Michael Davidoff, head trader

  Reid Nagle, chief financial officer

  Setrag Mooradian, chief accountant

  AT DREXEL BURNHAM LAMBERT INC., Beverly Hills

  Michael R. Milken, head of high-yield securities

  Lowell Milken, lawyer

  Richard Sandler, lawyer

  James Dahl, salesman

  Gary Winnick, salesman

  Warren Trepp, head trader

  Terren Peizer, trader

  Cary Maultasch, trader

  Bruce Newberg, trader

  Charles Thurnher, accountant

  Lorraine Spurge, administrator

  Lisa Ann Jones, trading assistant

  AT DREXEL BURNHAM LAMBERT INC., New York

  Dennis B. Levine, investment banker

  Fred Joseph, chief executive

  Donald Engel, consultant

  Stephen Weinroth, investment banker

  David Kay, co-head of M&A

  Leon Black, co-head of M&A

  AT GOLDMAN, SACHS & CO., New York

  Robert Freeman, head of arbitrage

  Robert Rubin, future co-chief executive

  Frank Brosens, arbitrageur

  David Brown, investment banker

  AT LAZARD FRÈRES, New York

  Robert Wilkis, investment banker

  Randall Cecola, analyst

  Felix Rohatyn, investment banker

  AT SHEARSON LEHMAN BROTHERS, New York

  Ira Sokolow, investment banker

  J. Tomilson Hill III, co-head of M&A

  Steve Waters, co-head of M&A

  Peter Solomon, investment banker

  AT BANK LEU, Nassau, the Bahamas

  Bernhard Meier, banker

  Bruno Pletscher, banker

  AT MERRILL LYNCH & CO., New York

  Stephen Hammerman, general counsel

  Richard Drew, vice president, compliance

  Major investors

  Carl Icahn, corporate raider and future chairman of TWA

  John Mulheren, head of Jamie Securities

  Henry Kravis, principal, Kohlberg Kravis Roberts Inc.

  AT WACHTELL, LIPTON, ROSEN & KATZ, New York (counsel for Goldman, Sachs)

  Martin Lipton, partner

  Ilan Reich, partner

  Lawrence Pedowitz, partner

  AT PAUL, WEISS, RIFKIND, WHARTON & GARRISON, New York (counsel for Michael Milken and Dennis Levine)

  Arthur Liman, partner

  Martin Flumenbaum, partner

  AT WILLIAMS & CONNOLLY,
Washington, D.C. (counsel for Michael Milken)

  Edward Bennett Williams, partner

  Robert Litt, partner

  AT CAHILL, GORDON & REINDEL, New York (counsel for Drexel Burnham)

  Irwin Schneiderman, partner

  Thomas Curnin, partner

  AT FRIED, FRANK, HARRIS, SHRIVER & JACOBSON, New York and Washington (counsel for Boesky)

  Harvey Pitt, partner

  Leon Silverman, partner

  AT MUDGE ROSE GUTHRIE ALEXANDER & FERDON, New York (counsel for Siegel; later at Fried Frank)

  Jed Rakoff, partner

  Audrey Strauss, partner

  AT ROBINSON, LAKE, LERER & MONTGOMERY, New York (public relations advisors for Michael Milken)

  Linda Robinson, partner

  Kenneth Lerer, partner

  AT THE UNITED STATES ATTORNEY’S OFFICE, New York

  Rudolph Giuliani, U.S. attorney

  Benito Romano, deputy to Giuliani, future U.S. attorney

  Charles Carberry, assistant U.S. attorney, future head of fraud unit

  Bruce Baird, assistant U.S. attorney, future head of fraud unit

  John Carroll, assistant U.S. attorney

  Jess Fardella, assistant U.S. attorney

  AT THE SECURITIES AND EXCHANGE COMMISSION, Washington, D.C.

  John Shad, chairman

  Gary Lynch, chief of enforcement

  John Sturc, assistant chief of enforcement

  Leo Wang, attorney

  Peter Sonnenthal, attorney

  Prologue

  Martin A. Siegel hurried through Washington, D.C.’s, National Airport and slipped into a phone booth near the Eastern shuttle gates. For years now, phone booths, often at airports, had served as his de facto offices. He complained often about his long hours and frequent absences from his wife and three children, but the truth was that he thrived on his pressure-filled life as one of the country’s leading investment bankers.

  May 12, 1986, had begun much like any other day. He had flown that morning from New York to Washington to visit a major client, Martin Marietta, one of the country’s leading defense contractors. A few years earlier, he had helped Marietta fend off a hostile takeover bid from Bendix Corporation, and the deal had launched Siegel’s star. He became one of the country’s most sought-after takeover strategists.

  The visit to Marietta had gone smoothly, with only one disturbing note. The company’s chairman, Thomas Pownall, was upset about a recent insider-trading case. Pownall was set to testify as a character witness for Paul Thayer, a former deputy secretary of defense in the Reagan administration, who had been charged with insider trading for leaking top-secret information he gleaned while a director of Anheuser-Busch to, among others, his Dallas mistress. Pownall, along with most of corporate America, had been stunned. He had often done business with Thayer at the defense department, and the two men had become friends. “It’s unbelievable, isn’t it?” he had remarked to Siegel.

  Siegel had nodded and quickly pushed any thoughts of Thayer aside. Handsome as a movie star, tanned, fit, Siegel, at 38, had recently moved to Drexel Burnham Lambert Inc., the powerhouse junk-bond firm. He was ready to vault to even greater stardom.

  Now Siegel dialed his office in New York. It was just after 2:45 P.M., and he wondered what the stock market was doing. He hated being separated from his array of sophisticated news-delivery mechanisms, from computer screens to wire services.

  His secretary, Kathy, briefed him quickly and then started ticking off the many calls that needed to be returned that day. Suddenly a rapid series of bells rang at the Dow Jones ticker tape just outside Siegel’s office, a signal that a major news announcement was imminent.

  Kathy moved to the ticker and gasped as the headline emerged. “SEC charges Drexel Burnham Lambert official with insider trading,” she read aloud.

  As Kathy waited for the ticker to resume its account, Siegel felt his almost perfect world collapsing. Everything he had worked for all his life. His $3.5 million compensation and his $2 million bonus he earned when he moved to Drexel from Kidder, Peabody & Co. earlier that year. The astoundingly lucrative mergers-and-acquisitions practice he was melding with Michael Milken’s junk-bond money machine. The blue-chip clients, like Martin Marietta, Goodyear, and Lear Siegler, that were now flocking to use Drexel’s and his services. The house on the beach in Connecticut, with its own tennis courts and swimming pool. The four-bedroom cooperative apartment in Manhattan’s exclusive Gracie Square. The helicopter rides to Manhattan. The glowing newspaper and magazine profiles.

  Suddenly the image of arbitrageur Ivan Boesky, once Siegel’s confidant and mentor, flashed before him and he felt a sudden terror. He thought Boesky might have him murdered.

  “Oh my God!” Kathy exclaimed as the ticker resumed. “It’s Dennis! It’s Dennis Levine! He’s been arrested!”

  Siegel told his secretary to keep reading. “The SEC charged Dennis Levine, a managing director of Drexel Burnham Lambert Inc., with insider trading in connection with an alleged scheme to buy and sell securities based on non-public information gained through his employment as an investment banker for a period of five years,” she continued. “Drexel Burnham said it will cooperate fully with the SEC in the investigation . . ”

  Dennis Levine. Dennis Levine was the investment banker in the office next door. Siegel broke into a sweat. All he could think was this: A gun had been pointed at his head, the trigger had been pulled, and miraculously, the bullet had killed Dennis Levine instead. Overweight, overeager, self-promoting, ineffectual Dennis Levine.

  In the Beverly Hills office of Drexel Burnham Lambert it was just before noon Pacific time, the peak of the trading day. Michael Milken sat at the center of a huge, X-shaped trading desk, his loyal traders and salesmen radiating out along the axes. As he avidly scanned the trading data on his computer screen, he reached for his two ringing phones—one for each ear.

  This was the epicenter of the new economic order, the capital of the junk-bond empire that Milken had created. “Hey, Mike,” called out one of the traders as the Levine news came over the wire. “Look at this.” Just weeks before, Levine had debuted at Milken’s hugely successful 1986 junk-bond conference, the “Predators’ Ball,” hosting a breakfast on mergers and acquisitions. Milken paused in his phone conversation, glanced at the news on his computer screen, then resumed work as though nothing had happened. “It’s like a bad car wreck,” one of the salesmen shrugged. “You slow down for a couple of days and then drive fast again.” Nothing could stop the Drexel juggernaut.

  Ivan Boesky, the legendary arbitrageur, emerged from the conference room at his Fifth Avenue offices and walked down the hall, trailed by several of his employees. Suddenly Jeffrey Hennig, one of Boesky’s traders, rushed out of his office waving a piece of ticker copy. He shouted toward Boesky, “Did you see this about Dennis Levine?”

  Boesky stopped abruptly and turned. “Dennis who?” he asked.

  “Levine,” Hennig replied. “Here.” He showed Boesky the ticker tape announcing the SEC’s charges against Levine.

  Boesky read the item quickly, then handed it back. “I’ve never heard of him,” he said, walking briskly away.

  Years later, looking back on that day, Siegel realized he had been wrong. The bullet that killed Levine killed him, too. It killed Ivan Boesky. It killed Michael Milken.

  The same bullet shattered the takeover craze and the greatest money-making boom in Wall Street’s history, and it exposed the greatest criminal conspiracy the financial world has ever known. The Greed Decade may have taken four more years to play itself out, but after May 12, 1986, it was doomed.

  Even now it is hard to grasp the magnitude and the scope of the crime that unfolded, beginning in the mid-1970s, in the nation’s markets and financial institutions. It dwarfs any comparable financial crime, from the Great Train Robbery to the stock-manipulation schemes that gave rise to the nation’s securities laws in the first place. The magnitude of the illegal gains was so large as
to be incomprehensible to most laymen.

  Dennis Levine, the small fish, confessed to $12.6 million in insider-trading profits. Ivan Boesky agreed to pay $100 million in forfeitures and penalties; no one pretends now that that is anywhere near the total of his illegal gains over the years. And then there is Michael Milken, whose crimes were far more complex, imaginative, and ambitious than mere insider trading. In 1986, Milken earned $550 million in salary and bonus alone from an enterprise that had been tainted with illegal activity for years. When he finally admitted to six felonies, he agreed to pay $600 million—an amount larger than the entire yearly budget of the Securities and Exchange Commission.

  Nor were these isolated incidents. Only in its scale and potential impact did the Milken-led conspiracy dwarf others. Financial crime was commonplace on Wall Street in the eighties. A common refrain among nearly every defendant charged in the scandal was that it was unfair to single out one individual for prosecution when so many others were guilty of the same offenses, yet weren’t charged. The code of silence that allowed crime to take root and flourish on Wall Street, even within some of the richest and most respected institutions, continues to protect many of the guilty.

  To dwell on the ill-gotten gains of individuals, however, is to risk missing the big picture. During this crime wave, the ownership of entire corporations changed hands, often forcibly, at a clip never before witnessed. Household names—Carnation, Beatrice, General Foods, Diamond Shamrock—vanished in takeovers that spawned criminal activity and violations of the securities laws.

  Others, companies like Unocal and Union Carbide, survived but were nearly crippled. Thousands of workers lost their jobs, companies loaded up with debt to pay for the deals, profits were sacrificed to pay interest costs on the borrowings, and even so, many companies were eventually forced into bankruptcies or restructurings. Bondholders and shareholders lost many millions more. Greed alone cannot account for such a toll. These are the costs of greed coupled with market power—power unrestrained by the normal checks and balances of the free market, or by any fears of getting caught.