View from Manhattan: Wall Street rehabilitates its beast

AS EARLY as next week, a New York judge will reveal whether she has decided to reduce the prison sentence of Michael Milken, an announcement that could result - in theory at least - in the release of the former Drexel Burnham Lambert financier by the end of the year.

It is not a coincidence, then, that Wall Street has begun to indulge in some revisionism over the myth of a bond salesman 'regarded by critics as the Hannibal Lecter of American business', as the author of a new contrarian biography put it last week.

When Milken was sentenced in 1990 to 10 years in prison, much of Wall Street was probably satisfied. For more than three years - from the time it was first revealed that Drexel was under investigation for possible securities law violations - the business community had been regularly tantalised with leaks about Milken's crimes, apparently supplied by government prosecutors to the Wall Street Journal.

A series of investment bankers, arbitrageurs and lawyers - from Dennis Levine to Martin Siegal and Ivan Boesky - confessed to their parts in a huge insider-trading scandal, receiving clemency in exchange for co-operating. One by one, Milken's aides, offered immunity from prosecution, agreed to testify against him. His indictment included 98 criminal charges, carrying a possible 520 years in prison and fines as high as dollars 18bn (pounds 9.6bn). So when Milken - a defendant more capable than any of affording a full defence - capitulated in April 1990 and agreed to plead guilty to six charges of securities fraud and pay dollars 600m in fines, his culpability seemed unquestionable.

Not only the business practices of Milken and Drexel were on trial that summer; so too was the entire junk bond market, and implicitly the whole merger and debt frenzy of the 1980s. When Milken was sentenced, he was blamed not only for the debasement of ethics on Wall Street, but for the botched restructuring of American industry, the huge debt overhang plaguing the economy, unemployment and America's lack of international competitiveness.

But there was always something unsettling about the lack of closure in the Milken case. Unlike the dramatic escapades of those who pleaded guilty before him - Dennis Levine's satchels of cash transported from the Bahamas, the tape recorders strapped to Boesky's chest - the six crimes acknowledged by Milken seemed quite technical in nature.

Instead of the expected lengthy trial - which was to have purged Wall Street of the evils of the 1980s, exposing a vast Ponzi scheme of avaricious corporate raiders and corrupt savings-and-loan executives, masterminded by Milken from Beverly Hills - the public got a week-long hearing where prosecutors appeared to have trouble making even a few minor trading violations stick.

Milken 'pleaded guilty with his fingers crossed', as one of his defenders put it last week. The campaign for Milken's rehabilitation began on the courthouse steps after his plea two years ago: 'In the long run, history will see his violations in context,' his lawyer, Arthur Liman, told reporters at the time. 'It will judge him on the basis of the contributions that he made to the economy and the American people.' This central argument - that Milken's crimes were blown way out of proportion for political reasons - has been reiterated over the past two years by his various spokesmen.

Milken - who was given the chance by Judge Kimba Wood to reduce his sentence by co-operating in other prosecutions - instead used his testimony last month and again this week as an opportunity to plead his essential innocence.

Another Milken lawyer, Alan Dershowitz, has heaped scorn on Den of Thieves, the bestseller published last year by the Wall Street Journal's editor, James Stewart. The flamboyant Mr Dershowitz - best known for his high-profile defence of the socialite Klaus von Bulow on murder charges - took out newspaper advertisements claiming the book is full of demonstrable errors because it relies heavily on information provided by Boesky. He also accused Mr Stewart of anti-semitism because of his characterisations of the book's villains, who are all Jewish.

A new book on Milken, scheduled for publication in the US next week, takes a decidedly different tack on his crimes, belittling the violations but arguing that the former Drexel financier was a borderline schizophrenic whose devotion to his clients blinded him to the immorality of his acts.

Highly Confident, by Jesse Kornbluth, a contributor to Vanity Fair, is basically a psychoanalytical examination of Milken, relying on 400 hours of interviews in prison, long talks with a psychiatrist hired by Drexel and the report of his probation officer. 'In my desire to please customers, I went too far,' Milken is quoted as saying.

Rather than dwell on the material losses that resulted from Milken's financing schemes - dollars 4bn in taxpayer-guaranteed deposits from two California S&Ls, for example - Mr Kornbluth focuses on his motivations. He argues that the government prosecutors, who could not afford to lose the case, orchestrated 'events so as to break him psychologically. They didn't care what he pleaded to,' Mr Kornbluth said in an interview this week.

Mr Dershowitz dismissed the book as 'psycho-babble', and told the Independent that 'Mike Milken certainly doesn't recognise himself in this book'. An earlier review condemned Highly Confident as 'another amateur-hour effort to sell the proposition that high finance is all about character. Correction: High finance is about money,' wrote Michael Thomas of the New York Observer. 'Character is what high finance suddenly becomes about when prison impends.'

Mr Thomas also made the point that Milken's crimes were in fact quite banal. But this makes them no less serious.

'The essence of the Milken scam was at the margin, where on the basis of relatively small trades prices were set for billions in junk, which under-pinned fee-generating takeovers and leveraged buyouts that in their turn financially disabled a large part of American commerce,' he argued.

Judge Wood appeared to appreciate this point when she handed down Milken's original sentence, noting that crimes 'that are hard to detect warrant greater punishment'. It now seems all but certain that Mr Milken, having so far spent 15 months in prison, is destined to spend the full 39 months required before he can be considered for early parole.

'Their criminal moments aren't great moments,' Charles Carberry, the prosecutor, conceded once, trying to explain the details of Milken's crimes to a group of reporters. 'This isn't Richard III.'

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