THE MILKEN SENTENCING : Milken Must Now Help Prosecutors Nail Ex-Friends

NEW YORK — For many former clients and colleagues of Michael Milken, unease may overshadow Thanksgiving dinner.

The harsh sentence imposed Wednesday puts him under intense pressure to cooperate fully with the government in hopes of getting his prison term reduced. In any event, the terms of his plea agreement require him now to begin telling prosecutors everything he knows. When the former Drexel Burnham Lambert junk bond king signed the agreement last April, he committed himself to “fully and truthfully disclose all information with respect to Drexel-related activities.”

If he doesn’t fully answer all the questions put to him, the agreement can be revoked. At least theoretically he could be indicted on scores of additional charges, possibly including perjury.

High on the prosecutors’ shopping list is information about some of the notorious corporate raiders of the 1980s, hose exploits were backed by Drexel Burnham Lambert junk bonds. Sources say prosecutors and Securities and Exchange Commission lawyers also are eager to grill him about some of Drexel’s biggest buyers of junk bonds. Among them are publicly identified targets of criminal investigations, such as Thomas Spiegel, the former chief executive of Beverly Hills-based Columbia Savings & Loan.

Columbia was one of Drexel’s biggest buyers of junk bonds. It is has confirmed that it will probably be taken over soon by federal regulators, due mainly to enormous losses on those bonds. Robert G. Morvillo, Spiegel’s lawyer, said: “We hope that Milken tells the truth, and we are convinced that if he does tell the truth, it will indicate that Mr. Spiegel is guilty of no wrongdoing.”

Investigators also have had a longstanding interest in Fred Carr, chairman of the Los Angeles-based insurance holding company First Executive Corp., who also was one of Milken’s best customers. It is unclear whether investigators currently have any firm evidence of illegal conduct by Carr or the company. Although First Executive has acknowledged in public filings that it is the subject of investigations, Carr has long maintained that neither he nor the company did anything illegal.

Investigators are eager, too, to talk to Milken about former Drexel executives and about a range of ex-clients such as Patsy Ostrander, once a portfolio manager for mutual fund giant Fidelity Investments. Ostrander resigned after Fidelity learned that she had been allowed to invest personally in a highly profitable Drexel partnership at the same time she was making decisions to buy Drexel junk bonds for her funds.

The House subcommittee on oversight and investigations is chomping at the bit to get Milken to testify publicly about the scores of lucrative private partnerships he controlled.

How much all of these investigators will get from him, however, remains to be seen. Unlike others caught up in the premier financial scandal of the 1980s, such as inside traders Ivan F. Boesky and Dennis B. Levine, Milken refused to cooperate until after his sentencing. Confidants said he didn’t want to appear to offer up his friends in exchange for a lenient sentence.

Milken undoubtedly will want to get his sentence reduced--a possibility that U.S. District Judge Kimba M. Wood left open if the government reports back to her that he has cooperated fully. But former colleagues say Milken may believe that he has no incriminating information on anyone. He is also known to be intensely loyal to former co-workers and clients. Milken’s spokesman declined to comment. His lawyers have said in earlier court appearances that he will live up to his promise to cooperate.

Even if he does know damning secrets, other strong pressures may make him reluctant to share them. He faces scores of civil suits that, if successful, could wipe out even a fortune as large as his is believed to be. Any testimony he gives can be used against him in the lawsuits. Lawyers say the few times he has testified before, such as in depositions, he seemed exceptionally adroit at evasive answers. But a former colleague said: “I don’t know if he can get away with that now.”

Jeremiah O’Sullivan, a lawyer for Ostrander, declined to comment about the possibility of Milken testifying against her. Ostrander herself couldn’t be reached for comment.

A number of other defense lawyers also asserted that their clients have nothing to fear from Milken. William Hundley, lawyer for Drexel’s former head junk bond trader, Warren Trepp, said: “The truth from Michael Milken will not cause Warren Trepp any problems.”

Trepp and several other Drexel employees had been expected to be named in a new indictment of Milken that was preempted when Milken agreed to plead guilty. In addition, former Drexel trader Bruce Newberg, named in the original indictment of Milken, is still under indictment. Newberg’s lawyer, Fred Hafetz, said he doesn’t know if prosecutors are eager to talk to Milken about Newberg.

During Milken’s pre-sentencing hearings in October, prosecutors surprised some defense lawyers by saying in open court that they may want to bring a case against Milken’s closest professional aide, Lorraine Spurge, who formerly headed Drexel’s high-yield syndication department. Spurge had testified before a grand jury under a grant of partial immunity. Lawyers earlier had said they thought that arrangement meant it was unlikely she would be prosecuted. Andrew Lawler, her attorney, said he didn’t believe that anything Milken could say would hurt her.