Milken Lawyers Say U.S. Has Argued Case Through Press

By SCOT J. PALTROW

Sept. 15, 1989 12 AM PT

Times Staff Writer

Lawyers for Michael Milken, former junk bond chief at Drexel Burnham Lambert, accused federal prosecutors of leaking confidential grand jury information and demanded that a federal judge hold a hearing to find the source of the leaks.

In court papers filed Wednesday, copies of which were obtained Thursday, Milken’s lawyers charged that articles about the criminal investigation that appeared in the Washington Post, the Wall Street Journal, the Los Angeles Times and the New York Times over the last three years resulted from deliberate leaks by officials in the U.S. Attorney’s Office in Manhattan or the Securities and Exchange Commission.

Indicted on 98 Counts

“From the inception of the grand jury investigation nearly three years ago, this case has been plagued by a constant stream of improper disclosures of confidential details of the investigation, all prominently reported in the national and local news media,” the court documents charged. “The government has presented--and is continuing to present--its case to the grand jurors as much through the pages of the daily papers as through the testimony of witnesses in the grand jury room.”

Milken, his brother, Lowell, and former Drexel trader Bruce L. Newberg were indicted in March on 98 counts of racketeering and securities fraud. The grand jury investigation has continued. A new “superseding” indictment in the case is expected this fall, and is likely to name additional defendants and contain new charges. Lowell’s lawyer joined in the motion for a hearing on the leaks.

Since the investigation of Milken began in 1986, major newspapers have followed the case closely, on several occasions reporting in advance details of expected charges, the names of potential defendants and dates when indictments were expected. By law, grand jury proceedings are confidential. The court papers suggested that the government deliberately leaked information, in part, to put pressure on potential targets to cooperate with the government.

Arthur Liman, Milken’s lead defense lawyer, said in a statement: “We were forced to make this motion because there is no case in the history of the federal courts that has had so much official leaking designed to prejudice a defendant’s rights.”

Among the articles singled out in the court papers were three by the Washington Post based on a confidential SEC memorandum the newspaper had obtained. The Post reported that the memorandum, among other things, details a meeting that allegedly took place in 1986 between Milken and former stock speculator Ivan F. Boesky to discuss concealing the true purpose of a $5.3-million payment from Boesky to Drexel.

The court filing also mentioned a Los Angeles Times article that appeared on Saturday, naming five current or former employees of Drexel’s junk bond department in Beverly Hills whom prosecutors have threatened with indictment.

Lawyers for the Milkens asked U.S. District Judge Kimba Wood to order the government to stop leaking confidential matters to the press. They asked the judge to impose contempt of court sanctions if a hearing identifies any leakers. The lawyers also asked the judge to force the SEC to turn over to the defense a copy of the memorandum on the alleged Milken-Boesky meeting.

No Comment From Editors

The lawyers, however, said they wouldn’t seek to cross-examine reporters about the leaks because “we are not interested in confrontations with the press.”

The U.S. Attorney’s Office in Manhattan in the past has denied that it was the source of the leaks. On Thursday, Jess Fardella, an assistant U.S. attorney prosecuting the Milken case, declined to comment on the court filing. He said the government’s answer would be contained in a written reply that will be filed with the court. “It’s our customary response that when somebody files something in writing that we respond in writing,” Fardella said.

Editors at the newspapers named in the court filing declined to comment on how information for the articles was obtained. Norman Pearlstine, managing editor of the Wall Street Journal, said: “It is our long-held policy that we don’t comment on sources.”

Shelby Coffey III, the editor of the Los Angeles Times, said: “We always aim to be fair when we report the news. But we do not comment on our sources.”

Legal Precedent

Peter Behr, the Washington Post’s assistant managing editor for business news, also declined to discuss sources, but said: “What we published is the result of an awful lot of reporting and it is not correct to suggest that somebody with an ax to grind is handing this to us on a silver platter.”

Behr said he was aware that reporting on the case might pose problems for the legal process, but he said, “This case is of tremendous importance,” and added, “We have to make judgments as journalists, not as lawyers or prosecutors.”

Frederick Andrews, business-financial editor of the New York Times, said: “There are a great many conceivable sources and we don’t discuss them.”