Regulatory Robber Barons

by Paul Craig Roberts
Copyright 1998 Investor's Business Daily
March 31, 1998

In the feudal period, local government officials known as robber barons would seize persons of means and keep them in their dungeons until ransom was paid.

As the 20th century comes to a close, robber baronies have made a comeback in the government sector. Many Americans have been snared, but ''junk bond king'' Michael Milken has been thrice held for ransom.

Milken was first grabbed by U.S. Attorney Rudolph Giuliani and the Securities and Exchange Commission. Milken forked over $600 million to buy his way out of a 98-count indictment that University of Chicago law professor Daniel Fischal has shown to be as phony as a $3 dollar bill.

Milken was next seized by the Resolution Trust Corp. and the Federal Deposit Insurance Corp. These agencies ludicrously blamed the collapse of savings and loans on junk bonds. To buy his way out of endless litigation, Milken handed over $900 million.

Recently, the SEC's robber barons grabbed Milken again. The SEC claimed Milken violated the conditions of his parole by acting as a securities broker in negotiations among MCI Communications Corp., News Corp., and New World Communications . Milken had served as a consultant, but only after a careful review by attorneys that held he was in no way acting as a securities broker or endangering his parole.

Milken had done nothing wrong. And the U.S. Justice Department confirmed that after Milken handed over another $47 million.

The SEC set its eyes on Milken's $42 million consulting fee in the MCI-News Corp.- New World Communications deal. The SEC figured that Milken, fighting prostate cancer, did not want to spend years in court fighting the SEC, which can reach constantly into taxpayers' pockets to keep bogus legal proceedings alive. Moreover, Milken's resistance to the SEC's depredation would have extended his parole term until the issue was resolved.

To buy his way out of the litigation dungeon, Milken agreed to hand over the $42 million fee that MCI's Bert Roberts and News Corp.'s Rupert Murdoch paid him, plus $5 million.

The money extracted from Milken is neither fine nor penalty and was not a payment for wrongdoing. Proof of the point is that the $47 million went into the Treasury's general fund and not into a fine fund.

On Feb. 26, 1998, the day the third extortion of Milken was concluded, the Justice Department wrote to Milken's parole judge that the department ''has spent considerable time, effort, and energy investigating'' whether Milken had violated his parole conditions as alleged by the SEC. ''After the most careful investigation, we have concluded that the initiation of probation violation proceedings in this matter is not warranted by the existing evidence and by the law,'' the department wrote.

In other words, Milken was held up and robbed by the SEC in broad daylight for no other reason than the power the SEC has to extract ransoms from chosen victims.

The Justice Department goes on to assure Milken's parole judge that Milken had not bought his way out of a parole violation: ''If there were sufficient evidence upon which to base a probation violation, we would have brought it irrespective of Milken's willingness to disgorge substantial sums to the SEC.''

Obviously, the Justice Department was an accomplice in the extortion of Milken. In violation of rules of evidence, Justice withheld exculpatory evidence and kept secret its finding that Milken had committed no wrong until after he had paid his ransom. Indeed, the SEC timed the extortion to take advantage of Milken's vulnerability - his term of probation expired on March 1.

What we have witnessed is a conspiracy between the SEC and the Justice Department to rob a man of $47 million.

This robbery was transacted even though one of the partners to the conspiracy wrote to a federal judge on the day of the conspiracy's conclusion that there was no basis in law or evidence for the charges against Milken, and even though neither party to the conspiracy can explain any legal reason for the extraction of the $47 million.

Power drunk, the Justice Department and the SEC have revealed themselves as unconstrained by law or ethics. We have reached the point where regulatory abuses exceed the market abuses that regulation is supposed to protect against. The real predators roam the corridors of government power.

Economist Paul Craig Roberts worked for the Treasury Department under President Reagan. He will write monthly for IBD.

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