Den of Thieves

In the mid-1980s, the American financial markets were engulfed by the greatest criminal conspiracy in Wall Street history. James B. Stewart, a Pulitzer Prize-winning reporter for The Wall Street Journal, reconstructs the rise and fall of four central figures: investment banker Martin Siegel, investment banker Dennis Levine, arbitrageur Ivan Boesky (a trader who profits from the price gaps created by mergers and takeovers), and Michael Milken, a financier who built a vast market in junk bonds (high-yield, low-rated corporate bonds). Their interlocking schemes of insider trading, stock manipulation, and fraud generated hundreds of millions in illegal profits before government investigators brought them down.

Stewart opens the story on May 12, 1986, when Siegel, who had recently joined the investment bank Drexel Burnham Lambert, learned that the Securities and Exchange Commission (SEC), the federal agency regulating financial markets, had charged his colleague Levine with insider trading. Siegel, who had been secretly selling confidential deal information to Boesky for cash, initially feared he was the target. In Beverly Hills, Milken, head of Drexel's high-yield securities department, barely reacted. Boesky pretended he had never heard of Levine. Stewart frames the arrest as the first crack in a conspiracy that would destroy all four men.

Stewart traces each protagonist's origins. Siegel, the youngest graduate of his Harvard Business School class, joined Kidder, Peabody in 1971 and pioneered takeover defense strategies, driven by the memory of his father's bankruptcy. By 1982, he crossed a line: At a meeting at the Harvard Club, he agreed to sell Boesky advance information about pending deals for cash. Over three years, Siegel received approximately $700,000, tipping Boesky to deals yielding tens of millions in profits. Simultaneously, Siegel exchanged confidential information with Robert Freeman, head of arbitrage at Goldman, Sachs, to benefit Kidder, Peabody's secret arbitrage department, which lacked a Chinese wall, the information barrier meant to prevent traders from acting on confidential client data. When Siegel told his boss, Ralph DeNunzio, that the information came from Freeman, DeNunzio said only: "Protect yourself" (184).

Boesky, the son of a Detroit bar owner who constantly embellished his credentials, had built his arbitrage fortune through increasingly reckless bets. After nearly going bankrupt during the 1982 Cities Service deal, he resolved to eliminate risk entirely through inside information. His arrangement with Siegel was just the beginning.

Levine, an ambitious graduate of Baruch College who had been rejected by every major investment bank, began his insider-trading ring in 1979. He recruited Robert Wilkis, a Harvard-educated banker at Citicorp. Levine also ensnared Ilan Reich, a lawyer at Wachtell, Lipton, Rosen & Katz, and Ira Sokolow, a Lehman Brothers banker who in turn recruited a Goldman, Sachs source known as "Goldie." Trading through Bank Leu International in the Bahamas under the code name "Mr. Diamond," Levine accumulated over $10 million in profits. After moving to Drexel in 1985, he formalized his relationship with Boesky, receiving a percentage of profits Boesky earned on his tips.

The most powerful figure was Milken, who had transformed Drexel from a marginal firm into a Wall Street powerhouse. Operating from Beverly Hills beginning at 4:30 A.M. and demanding total loyalty, he assembled a captive network of bond buyers. His compensation gave him 35% of his department's profits; in 1986, he earned $550 million, more than Drexel's entire corporate profit. Milken directed Boesky to accumulate stock positions to pressure companies into Drexel-financed takeovers, secretly retaining a 50% interest. Their schemes spanned companies including Fischbach, Pacific Lumber, and Harris Graphics. When Boesky's $5.3 million debt to Milken from joint trading was accidentally revealed to auditors, it was disguised as a "consulting fee" with a fabricated invoice that later became central evidence.

The investigation began almost by accident. On May 25, 1985, an anonymous letter from Caracas, Venezuela, arrived at Merrill Lynch alleging suspicious trading. Compliance officers traced the trades to Bank Leu International, where 28 suspicious stocks appeared in a single account. The SEC opened an investigation, but Swiss secrecy seemed insurmountable. The breakthrough came when Harvey Pitt, a former SEC general counsel retained by Bank Leu, discovered the bank's officers had been lying about the trading. In exchange for immunity, the bank revealed the customer's identity. On May 9, 1986, Pitt called enforcement chief Gary Lynch and identified the customer as Levine, calling him "Moby Dick."

Levine was arrested within days. He pleaded guilty to four felonies and cooperated, identifying his co-conspirators and confirming his connection to Boesky. The ring collapsed: Wilkis, Sokolow, and David Brown, the Goldman, Sachs source, all pleaded guilty. Reich broke down during interrogation by his own law partners and confessed. Levine was sentenced to two years in prison.

In late August 1986, Pitt, now also representing Boesky, contacted Lynch. Boesky signed a plea agreement to plead guilty to one felony, pay $100 million, and cooperate fully. Before the settlement became public, he operated undercover, meeting Milken at the Beverly Hills Hotel wearing a hidden microphone. On November 14, 1986, the SEC announced the settlement, triggering panic on Wall Street. Milken privately summoned his top salesman, James Dahl, to the office men's room and told him: "Whatever you need to do, do it" (341).

Siegel confessed and pleaded guilty to two felonies on February 13, 1987. The previous day, the government had arrested Freeman at Goldman, Sachs and two associates, Richard Wigton and Timothy Tabor. The Freeman case faltered over errors in the arrest affidavit, and prosecutors dismissed the indictments. Bruce Baird, an experienced organized crime prosecutor, pursued new leads. A former employee of Princeton-Newport Partners revealed the firm had been "parking" securities with Drexel, temporarily placing them to disguise ownership and create phony tax losses. Raids yielded incriminating tape recordings.

Milken assembled a formidable defense, hiring legendary trial lawyer Edward Bennett Williams and launching a public-relations campaign that graded reporters on favorability and cultivated community support. But the wall of silence cracked in 1988. Dahl received a target letter, a formal notice that prosecutors were considering charges. He discovered that suspicious trading tickets bore Milken's initials rather than his own, and when Milken refused to acknowledge the trades, Dahl began cooperating. Terren Peizer, another trader, followed, bringing documents in the handwriting of Lowell Milken, Michael's brother and a Drexel lawyer.

Frederick Joseph, Drexel's chief executive, had defended Milken for two years. His faith collapsed after Craig Cogut, a lawyer within Milken's in-house Drexel legal operation, revealed that Milken had distributed valuable client warrants (rights to purchase company stock at a predetermined price) to his own family, and Drexel counsel Tom Curnin confirmed that trading records corroborated allegations independent of Boesky. In December 1988, after bitter internal battles, Drexel's board voted to plead guilty to six felonies and pay $650 million. Joseph called Milken with the news. "Aren't I innocent until proven guilty?" Milken responded. "Isn't this a free country?" (479).

Plea negotiations with Milken collapsed over his insistence on immunity for Lowell. On March 29, 1989, as the grand jury voted to indict on 98 counts, Milken's lawyer called to say Milken was ready to plead. "I'm sorry," acting U.S. Attorney Benito Romano replied. "It's too late" (488). In April 1990, after renewed negotiations, Milken pleaded guilty to six felonies. "I am truly sorry," he said, his voice breaking (512). On November 21, 1990, Judge Kimba Wood sentenced him to ten years: "When a man of your power in the financial world repeatedly conspires to violate, and violates, securities and tax laws, a significant prison term is required" (517). Milken did not initially understand the total. His lawyer told him gently: "Ten years, Michael. The sentence is ten years" (518).

Drexel did not survive. The junk-bond market collapsed as heavily indebted companies defaulted, and the firm filed for bankruptcy on February 13, 1990. The Freeman case was resolved in August 1989 when Freeman pleaded guilty to a single felony and received four months in prison.

In the Epilogue, Stewart traces the aftermath. Milken settled civil lawsuits for an additional $500 million, yet Stewart estimates he retained approximately $600 million in personal wealth, with his family's combined resources exceeding $1.2 billion. Boesky, released from prison in 1989, saw his wife Seema sue for divorce; through his plea agreement, family assets were protected from government claims. Stewart concludes that while every major participant emerged wealthy, the prosecution represented a historic achievement. The securities laws, he argues, remain essential protections against the corruption of financial markets, even as history suggests new scandals will inevitably emerge.