Den of Thieves

by James B. Stewart

  Milken’s then two-year-old son, Gregory, had health problems, and Milken’s father had cancer. The decision to move surely wasn’t made just because Milken wanted a healthier climate and wanted to be close to his family and childhood friends, though those were factors. It was already obvious that Milken’s success had little to do with Drexel, and that Drexel’s success had everything to do with Milken. The hapless Burnham, the firm’s titular head, knew little outside the increasingly unprofitable retail brokerage area; his shrewdest move had been to recognize Milken’s potential and give him a long leash. Kantor was even less of an influence, an old-fashioned trader baffled by the computerized math and sophisticated strategies being developed by a new generation. Milken had no interest in wrangling with their likes for political influence.

  Why not simply move, using Drexel as an umbrella, but effectively setting up an autonomous operation that would be under his total control? As Milken confided in Winnick and others, he had every intention of using the California base to expand junk bonds into virtually every profitable area, from underwriting and trading to mergers and acquisitions. Junk bonds were simply a fresh way to raise capital—capital that could be employed to serve any of an investment bank’s traditional functions. As long as his compensation structure stayed in place—and no one at Drexel would dare to challenge it—the bulk of the firm’s profits would end up under his control. Already, his employees in New York were making so much more money than anyone else at Drexel that all of them volunteered to move.

  Milken and his family bought a house once owned by Clark Gable and Carole Lombard in his hometown, Encino. Milken opened for business in small offices on the Avenue of the Stars in Century City in 1978 with 15 Drexel employees, including Winnick. The offices were already too small when they moved in; Milken sat with Trepp, his head trader, at his side. He was within earshot of all his traders and salesmen throughout the trading day.

  With Milken in control, everyone conformed to his standards. The workday began promptly at 4:30 A.M. (7:30 A.M. in New York) and continued until 8 P.M. (11:00 P.M. in New York). Phones rang constantly. With his two phones, Milken often carried on multiple conversations at once. There was a cacophony on the trading floor, with questions and comments constantly shouted. After the market closed (at 1 P.M. California time), Milken scheduled meetings, racing from one conference room to another. All were filled with clients hoping for direct access to him.

  Milken was sometimes in the office before the scheduled opening. When his employees arrived at 4:30, they’d often find his notes on their desks, outlining their day’s agenda.

  In 1981 Milken found a sales counterpart to Trepp, someone who was as good at selling as Trepp was at trading. He was James Dahl, and on the surface he had little in common with Milken or others at Drexel. Dahl was a WASP, though not a product of the Ivy League establishment but the son of a struggling real estate broker in a lower-middle-class neighborhood of Miami. He graduated from Florida State University in Tallahassee with honors and won a scholarship to the university’s business school, earning an MBA. He was handsome, with longish blond hair, green eyes, a tan that gave him a Beach Boys aura, and a dazzling smile.

  Milken rarely gave any signs that such qualities mattered to him, but colleagues say he seemed fascinated by aspects of Dahl he lacked—as if the hiring of Dahl demonstrated conclusively that he could attract someone who at least looked like the embodiment of the American dream, a kind of Robert Redford of the bond world. After a series of 5 A.M. interviews, first in Los Angeles and then over breakfast at the Plaza Hotel in New York, Milken had asked Dahl about his wife, how many children he hoped to have, what he did in his spare time, his family background, and what his father had done for a living. He never asked him where he went to school, or how he’d fared academically.

  Evidently Milken had concluded that Dahl had the fundamental qualities he was looking for: a real hunger to make money, and a commitment to family values. Dahl was out of work at the time, having passed through Citibank, Lehman Brothers, and a recently defunct trading subsidiary of First Penn Bank. Then he had moved to Trading Company of the West, which also failed. He’d returned to Florida, when a mutual friend arranged the introduction to Milken. Despite the track record of some of his employers, Dahl had done well for himself, earning $450,000 at the Penn Bank subsidiary. Milken hired him at $20,000 a month, with a promise that he’d sit next to the boss.

  With Dahl, as with all his employees, Milken demanded total commitment and allegiance. No one left the office to eat; meals were catered every day for breakfast and lunch and often for dinner as well. To prevent any distractions, Milken hired several women to pick up dry cleaning for his traders and salesmen, go to the post office, wait at their houses for repairmen and deliveries, and take care of pets. Soon after he first came aboard, Dahl, still adjusting to the time change, started to leave the office after the markets had closed on a Friday.

  “Where are you going?” Milken asked sharply.

  “I’m tired, and I’m going home to read research reports,” Dahl replied.

  Milken was appalled at such a lack of stamina. “Read here, then go home and take a nap,” he said. Dahl meekly returned to his desk.

  On another occasion, Dahl was leaving the office after learning that his mother had been diagnosed with cancer. “Where are you going?” Milken again demanded.

  Dahl said he was worried, his aunt and uncle had both died of cancer, he wanted to visit his mother. Milken looked disgruntled. “When are you going to be back?” he asked. He did not express any concern or sympathy.

  A few years later, when Dahl’s wife went into labor prematurely and the baby died after two hours, a devastated Dahl was at his desk the next morning, determined that Milken wouldn’t notice his grief. He had learned that Milken expected nothing less.

  No one had much private life. Ironically, given the lip service Milken paid to marital fidelity and family values, the intense, hothouse atmosphere kept employees away from their families and spawned intra-office affairs between traders and secretaries, including one between Trepp and Milken’s own administrative assistant, Jeannette. Milken seemed oblivious until they announced their engagement.

  One of the office’s secretaries kept a diary detailing her sexual encounters with men in the office. One of the most talked-about entries described in lurid detail how she gave one salesman fellatio and used drugs. Such incidents were commonplace. Some of the trading assistants in the office even had breast implants, paid for by Drexel salesmen and traders.

  On one occasion in 1984, Milken’s employees hired a stripper to celebrate his birthday. She arrived during trading hours, shed all of her clothing while dancing around Milken’s desk, then leaned toward him shaking her ample breasts in his face. Just then, Milken’s phone rang. It was a client wanting to do a trade. To escape the stripper, Milken ducked down under the desk, still gripping his phone. The stripper followed him on hands and knees as Milken completed the trade.

  Milken rarely socialized with others in the office and, indeed, spent little time with his own wife and his two sons and daughter, though he did show up for important sporting events and school occasions and coached his sons’ basketball team. On a family trip to Hawaii, Milken rented three suites in the hotel: one for him and Lori, one for the children, and a third that functioned as his office. He worked every day of the vacation from 3 A.M. until 8 A.M. Hawaii time, while the markets were open in New York.

  With rare exceptions, Milken only left his desk during work hours for nonbusiness reasons once a year, when he took his wife to lunch on their wedding anniversary. He usually ate at his desk, mostly junk food. He never seemed to get any exercise. Even during off hours, he was usually in his home office; calls there, even late at night and on weekends, were answered promptly. On the rare occasions when he did attend parties, he seemed awkward. At birthday parties, he spent most of his time playing with the kids.

  Milken was a perfectionist and could be r
elentlessly critical, questioning a trade over and over, fixating on a fraction of a point. He’d ask the same question over and over, badgering a trader to make the point that the trader had been foolish or stupid. But after Trepp demonstrated to Milken that he’d been right in five disputed trades, he told Milken to “stop nagging me,” and for the most part Milken did.

  Dahl once asked Milken why he criticized so much and never praised anyone. “There’s not enough time in the day to sit around praising each other,” Milken sharply replied. “We don’t need to talk about our successes. We only need to talk about our failures.”

  In this atmosphere, what might seem ordinary gestures of kindness elsewhere seemed memorable. Once, when Winnick was getting ready for a rare vacation to Italy, Milken sent him a bon voyage package and a note telling him to have a great trip. When they moved to the Los Angeles area, Milken extended personal loans to nearly all the employees so they could buy nice houses. When Dahl and his wife celebrated their wedding anniversary in Palm Springs, they were greeted with a large bouquet and a card reading, “Happy Anniversary. Mike and Lori.” Milken made a hospital visit and offered financial help to the dying brother of a member of the office’s support staff.

  Trepp was constantly amazed at Milken’s obsession with squeezing more profits out of trades, and frequently had to remind him that securities dealers’ guidelines permit only a 5% markup. Milken’s power over the market was so complete that he frequently tried to mark prices up as much as 25%. One of Trepp’s responsibilities as head trader was to sign the trading tickets; when Trepp saw what he considered an egregious ticket, he bounced it back to Milken. But at times, Milken did the trades anyway and someone else forged Trepp’s initials; he doesn’t know who.

  On at least four occasions, Trepp threatened to quit over what he considered serious trading improprieties. He had loud fights with Milken, and in each case, Milken backed down. Milken never fired anyone. He was obsessed with the notion that anyone who left would reveal his secrets, the scope and success of his money-making activities.

  The pressure took its toll, in varying degrees. Peter Ackerman was hired initially as a trader, but Milken’s relentless criticism reduced him on one occasion to tears. Ackerman quit trading, and focused increasingly on cultivating clients, functioning more as an investment banker for Milken. He became so sycophantic toward Milken that others resented him. His nickname was “the Sniff,” because, in the words of a colleague, “his nose was always up Mike’s ass.”

  Trepp began smoking four packs of cigarettes a day. Another trader took to chewing rubber bands; another developed a serious drinking problem. Bruce Newberg, deemed a brilliant technician by many in the office, had to start taking blood pressure medication. One day Newberg started raving hysterically when his phone line went dead during an important conversation with a client. It turned out that he had chewed through the phone cord.

  Winnick developed a reputation as the office hypochondriac, sometimes checking himself into the Scripps Institute in San Diego because he thought he had brain tumors and other serious ailments.

  In perhaps the saddest case, Cary Maultasch developed serious psychological problems and had to see a psychiatrist. Milken allowed him to move back to New York, where he became Milken’s liaison with Drexel’s headquarters—in effect, a Milken mole. Maultasch continued to handle trading for Milken; at the end of each day he shredded the records on Milken’s orders so no one in New York would see the details of Milken’s operation.

  Milken didn’t like the time his traders and salespeople spent trading for their own accounts. This was a major reason that the office formed various investment partnerships to take advantage of investment opportunities Milken encountered. He banned personal trading, but allowed each employee to invest up to an allocated amount in the partnerships. Within the office, employees could rank themselves on the “A” team or “B” team depending on the size of their partnership allocation. Some favored employees, such as Ackerman, even received partnership interests as part of their compensation. In some cases, Milken made large personal loans to employees so they could afford to invest the full amount of their allocation.

  Soon after Dahl’s arrival in California, Milken invited him to his home in Encino, where Milken took a rare break and lounged with Dahl by the pool. Milken told Dahl that the partnerships would make him rich. But he warned him not to live lavishly, and told him he shouldn’t buy a large house, at least not yet. He said there would be plenty of time and money to do that later.

  Such promises had to be accepted at face value, since access to partnership information was tightly restricted. No one knew in advance where the money would be invested. The office’s computer runs were altered so that no one but Milken was privy to the partnership trading activity.

  The compensation for all of this, of course, was money. While their incomes had hardly reached the stratospheric levels they would in the mid-eighties, the Drexel employees in Los Angeles were earning five times what most of their counterparts earned on Wall Street. Dahl, for example, topped $1 million in only his second year in Los Angeles. Milken himself, though no one knew it at the time, earned a staggering $45 million in 1982.

  In keeping with Milken’s admonitions, however, there was little to suggest to anyone outside the office that such riches were being earned. Although Trepp bought a white Rolls Royce Corniche convertible, Milken didn’t want him to drive it to the office. Milken himself lived comparatively modestly. His wife wore the same simple black velvet dress to the Christmas party every year. Milken drove a slightly battered yellow Mercedes; he sold it to Dahl when it had 80,000 miles. When Armand Hammer, the famed industrialist who became one of Milken’s and Drexel’s most important clients, visited the office, Milken served him coffee in a Styrofoam cup. Decorations in the office consisted of some framed Olympics posters.

  Milken, by his own design, made no impression whatsoever in the Hollywood social orbit or even business and professional circles. His reading consisted almost exclusively of research reports, prospectuses, and other financial documents. Milken struck his colleagues as remarkably unworldly, knowing little about art, literature, politics, or even current events outside of his immediate concerns.

  Winnick, Dahl, and some of the other traders had read a Robert Ludlum thriller, The Matarese Circle, published in 1979. They were struck by Milken’s resemblance to one of the main characters. The book is classic Ludlum, a wildly improbable but suspenseful tale of world conquest through multinational corporations. At the center of this conspiracy is a brilliant, driven financier, fixated on his vision of world control. His name is Guiderone, but he is known throughout the book as “the shepherd,” because he was born a Corsican shepherd. His followers are so loyal they willingly sacrifice their lives to carry out his vision of world conquest.

  “I’ve heard of him,” says one of the book’s characters. “A modern-day Carnegie or Rockefeller, isn’t he?”

  “More. Much more,” replies another. “The Geneens, the Lucases, the Bluedhorns [sic], the wonderboys of Detroit and Wall Street, none of them can touch Guiderone. He’s the last of the vanishing giants, a really benign monarch of industry and finance. . . . I suppose you could call it the definitive story of the American dream.”

  Milken’s disciples in Beverly Hills began referring to him as “the Shep,” and the nickname stuck. Winnick gave Milken a copy of Ludlum’s thriller, curious to see how Milken would react, whether he would see any resemblance in himself to the book’s central character. But so far as he could tell, Milken never read it.

  For many of the Beverly Hills employees, life in the office took a turn for the worse when Milken’s younger brother, Lowell, joined the operation in 1979. Lowell, a lawyer, had been a partner in the Los Angeles law firm Irell and Manella, where he specialized in tax law. Milken had a relationship with his younger brother that was both intensely competitive—he seemed obsessed with beating him in tennis—and highly protective. Lowell was brought in, c
olleagues say, to relieve Milken from overseeing all the partnership activity and to handle tax issues. Others in the operation were struck that Milken would only trust a member of his immediate family for such a task.

  Lowell seemed as driven as his brother, but he never showed flashes of warmth as Milken sometimes did. He had a lawyerly mind that struck the freewheeling traders as cold and anal. Lowell did little to mix with others. He installed a separate door in his office so that he didn’t even have to walk through the trading floor. His office was grandiose by Drexel standards, with custom wood paneling and expensive art. If someone other than Milken walked into his office, Lowell would conspicuously turn the papers on his desk face down. Some of the traders would mockingly do the same whenever Lowell walked near their desks. In a typically crude stab at humor, they would also grab their crotches when Lowell’s back was turned, imitating one of Lowell’s nervous gestures.

  Never one to miss a profit opportunity, Lowell helped arrange a move of Drexel’s West Coast office from the Century City complex to Beverly Hills—into a building owned by Lowell and Milken on Wilshire Boulevard just off Rodeo Drive. It was a shrewd investment. Drexel rented the space from them, bestowing lucrative tax advantages in the process. And the location was almost certain to appreciate in value. Just down the street from the elegant Beverly Wilshire Hotel, it was also just around the corner from chic boutiques like Giorgio and Bijan.

  But the interior of Drexel’s building could have been miles away from the glitz and glamour, as far as Milken was concerned. Here Milken had installed a large X-shaped trading desk. He sat at the center, within easy range of his growing number of lieutenants arrayed along the four branches of the X. The desk was equipped with the latest high-tech communications and trading data, but the office decor remained spartan. Only the address—9560 Wilshire Boulevard, Beverly Hills—had cachet.