Renegades of Junk: The Rise and Fall of the Drexel Empire

It might not have been the greatest thing for Drexel to have used junk bonds for hostile takeovers. … Between Congress and the courts, they—the other side, the establishment, the Business Roundtable—basically turned all their guns on these upstarts taking over.

You could say we were banditos. … When we started to take business from these other people, that's when they started to come after us.

I don't think we ever really understood how pissed off people were getting in the rest of the financial markets. I don't want to sound haughty about the thing, but even in retrospect, people couldn't compete. And people were getting pretty upset, and a lot of traditional companies that were represented by traditional firms found that their clients became targets of some Drexel clients.

We were very competitive, very tough, very not-nice to co-managers. And you know that hurts you, obviously. You kick enough people on your way up, they're going to remember it on your way down..

If you listen, you can hear them. They're out there in the weeds, they are crawling toward us. And there are lots of them. They're trying to get us. How are they going to get us? And somebody said, “Well, we've got to shoot ourselves in the foot.” And somebody else said, “No. We've got to cross our legs and shoot ourselves in both feet, because they're that far away.” And at the end of the day, when you look back at it, we crossed our legs and shot ourselves in both feet.

We arrest Dennis Levine, A Drexel banker who cooperated with the government's insider-trading investigation. He pleaded guilty to tax evasion, perjury and securities fraud and was sentenced to two years in prison. and he comes down and we show him, “Look, you're dead. Here's your signature on the foreign account. You haven't paid taxes. Forget the insider trading, you're just a dead man.” … He drove down from his apartment in some incredibly expensive car, I forget what it was. He was shocked to be arrested and he wanted to know what was going to happen to the car, and we told him basically it's going to be parked in the municipal garage. And that was quite upsetting to Dennis. … He decides to cooperate. He gives us some information which leads us to Ivan Boesky. Boesky, one of the decade's most famous traders, spent two years in prison after pleading guilty to one felony charge of conspiring to make false statements to the SEC.

It was announced around right at the close of business that Boesky had made this deal with the government. … We had federal marshals come to the office that day to deliver subpoenas. It was kind of surreal.

Boesky's cooperation led to Marty Siegel, The specialist in takeovers joined Drexel in 1986 from Kidder Peabody, where the conspiracy and tax-evasion charges he later pleaded guilty to occurred. He went to prison for two months. and then Marty Siegel eventually cooperated, too.

I think everybody assumed that, at that point, that their phones could be being tapped and that, you know, that the whole firm was under investigation.

I sat there in the bunker for eight days, and I called Fred and I said, “Fred, we've got it wrong. They're not trying to hurt us. They're trying to kill us.”

There were issues. The firm did business with Boesky. In fact, I guess in March of 1986, the firm had raised $660 million for Boesky. So there were issues.

One of the things we all, as a group, decided to do is that we were just going to keep working through it, and that Mike was going to fight, and the firm was going to fight. And that's what we did. … We used to keep the newspapers up on a wall. I tried to see from here to there if we were the top story or in the top 10. Because I knew if our name was in there, we were going to have a rough day.

I think his reputation is to him the most important thing in the world. And his reputation was just being sullied.

I was stunned that he wasn't put on leave, as most firms would have done back then, put on leave while the firm conducted an investigation and cooperated with the authorities. Instead, from the get-go, it was we're going to fight this. And as the months went on and years went on, the likelihood that they were going to come out of it as a healthy firm and continue to be a respected investment bank got smaller and smaller.

Except for the craziness of the investigation, I think the firm did some of its very best work. … RJR Nabisco Drexel worked on Kohlberg Kravis Roberts & Co.'s record-breaking leveraged buyout of the tobacco and food company. happened after Boesky. Mellon Bank deal happened after Boesky.

That increasingly became more of a challenge. … Companies would want to have co-underwriters, just because we had issues, and they had concerns.

I literally get calls telling me that, “I heard the building is surrounded.” I'd look out the window. I don't see anybody. Crazy calls like that through the '80s. And it was a lot of pressure.

As time went on and Mike started spending time off the desk, you started to wonder, but you still didn't know.

The board made the decision that because Rudy Giuliani Giuliani was the U.S. Attorney for the Southern District of New York before he ran for mayor in 1989. had the weapon of RICO Racketeer Influenced and Corrupt Organizations Act and he was going to charge us with racketeering, he would drive us out of business. … Drexel had to plead guilty to survive.

The firm, which already had competitors like Goldman Sachs and other firms that went into high-yield markets, had to prove to their clients that even without Mike Milken, they could do well. And that's when the problem occurred. Because then they issued some bonds that were of low quality, very low quality, and they couldn't place them. So they were stuck. … The problem occurred when Mike Milken was indicted.

The spirit and the moral fiber were broken by the great one not being there. It was a tragedy.

It was nauseating. It was just nauseating.

Fred Joseph, who was our CEO, came on the squawk box and went through a presentation. … He said the words, “We have a little liquidity problem.” And all the senior bond salesmen looked around, packed up their things, and walked out the door.

I actually was told by my then-wife when I walked in the door on Friday, “How are you doing?” I said, “Fine.” She said, “Really?” And she said to me, apparently it was in the little bit of the wife rumor mill of senior people that the firm was having significant troubles.

Drexel L.A. at that point got to be about 130 people. And I had to call everybody together and tell them that it's over. … I remember going back to my desk trying to talk to clients and say, “Maybe we'll be able to pull this thing out.” And somebody came by while I was talking on the phone and put a price tag on my potted plant.

Some of these crazy guys, they tried to buy an airline ticket around the world quickly while the credit card still worked.

The worst day of my life. …I was in London, and I got a call from Alison Mass, The Drexel alumna is now co-head of Goldman Sachs's financial sponsors group. a very talented banker, who told me it just came across the tape that Mike got 10 years. Milken was released after 22 months.

Even if you said some of these things were wrong or even illegal, they were done to try and help people out where practically nobody was getting hurt, where you're talking about eighths of a point on a $43 stock. Who gives a s---? And in retrospect, they're nothing compared to the fraud of the '90s and 2000s.

We live in a society where the president of the United States was getting blow jobs in the Oval Office. And nobody's perfect. And people make mistakes.

Let me ask you a question, OK? When you're traveling at twice the speed of light, can you miss a stop sign?

The punishments that were meted out had a lot to do with the rest of Wall Street, and the government's view of Drexel as being bad, too aggressive, yada yada. … Milken never pleaded guilty to the inside information. And whether he ever passed inside information to Ivan Boesky, I don't know. … The other things that were done were so-called parking violations, where an institution would have a security they didn't want showing on its balance sheet at the end of the year. So it would sell it to Drexel with a wink and a nod that we'll buy it back at the same price. That wink and a nod is illegal.

What we thought we were doing was something incredibly honest and valuable. We were basically freeing up monstrous amounts of capital. … We thought that was a good thing. It is a good thing.

God knows what would happen to folks now if they engaged in the kind of conduct that people were engaged in back in the '80s. … People stepped over the line and violated the law. Back then I didn't accept—and I don't accept today—that the violations were trivial.

I really do believe the investigation of Drexel was created by the desire of people looking to create high profiles so they could seek public office.

When we were forced out of business, everybody said that the high-yield bond market was a creature of Mike's manipulation.

Some people thought it was a sham, it's rigged. Now it's a trillion-dollar market. It's anything but a sham.

You look at the progeny of Drexel—the people who worked at Drexel and their success today. It's more than a coincidence that so many people who had been at Drexel have done so well.

I spent 11 years there, it was terrific. It took a huge personal toll on me. The pressure, it was continual. I gained a lot of weight, which thank God I've lost now. And I never exercised—I never had time to do anything other than work. But it was great.

Somebody did something and called for a vote on who had the greatest positive influence, Michael Milken or Mother Teresa. And Michael Milken won hands down.

It's easy to say: one of the greatest financial entrepreneurs, along the likes of J.P. Morgan. But I think it goes way beyond that.