For all practical purposes, the five-year investigation of Drexel Burnham Lambert Inc. and its principals will end in mid-July with a hearing in federal court in New York. A surfeit of losers frustrates any attempt at determining who was hurt worst by the House of Junk's catastrophic fall. But there's little doubt about who is set to emerge the big winner: Peter Ackerman.
Ackerman, a specialist in leveraged buyouts, was the highest-paid of all of Michael R. Milken's minions. In Wall Street history, only Milken ever made more than the $165 million salary Ackerman got in 1988, largely in recognition of his leadership in arranging financing for the $26 billion buyout of RJR Nabisco Inc. But unlike Milken, who is serving a 10-year prison sentence for securities fraud, Ackerman not only has hung on to his freedom but to the bulk of his fortune, which approximates $500 million. Indeed, it's likely that Ackerman will walk away a wealthier man than Milken by some $75 million under a sweeping settlement of Drexel-related civil claims pending before U.S. District Court Judge Milton Pollack.
PRIVATE MAN. Ackerman, who holds three advanced degrees from the prestigious Fletcher School of Law & Diplomacy, is putting his fortune to no visible use as he continues an improbable transformation from junk-bond promoter back to scholar. Ackerman, 45, is a visiting fellow at the well-regarded International Institute for Strategic Studies in London, to which he beat a fortuitously timed retreat just before Drexel collapsed into bankruptcy in February, 1990. His other principal affiliation is with the Albert Einstein Institution, a think tank in Cambridge, Mass., devoted to the support of nonviolent political struggle. Both Ackerman and his wife, the novelist Joanne Leedom-Ackerman, sit on its board.
Ackerman declined BUSINESS WEEK's interview request. Indeed, he guards his privacy so zealously that he won't even give his phone number to the folks at the Institute for Strategic Studies. In pursuit of his new calling, though, Ackerman occasionally pops up in surprising places. In April, 1991, he and two American colleagues spent a week conferring with President Vytautas Z. Landsbergis and other top Lithuanian officials in the barricaded parliament building in Vilnius. Upon returning to London, Ackerman briefly abandoned his low profile to write a prescient International Herald Tribune opinion piece, Nonviolence Would Be Lithuania's Best Weapon.
To date, anyway, Ackerman has succeeded in checking his Drexel baggage at the gates of academe. "I haven't seen any evidence of a negative attitude out there in scholarly circles because of Peter's connection to Drexel," says Christopher Kruegler, president of Albert Einstein. However, Kruegler is reserving final judgment until next spring, when a book he is co-authoring with Ackerman is due out. Entitled Strategic Non-Violent Conflict, the volume is a refinement of the 1,074-page PhD thesis that Ackerman completed in 1976.
Ackerman hasn't entirely abandoned his old trade. In early 1990, he was hired by London-based advertising giant Saatchi & Saatchi Co. to provide top-level advice on an exhaustive financial recapitalization completed last spring. Ackerman knew at least one of Saatchi's top executives from his Drexel days.
Ackerman's smooth transition to a respectable new life galls his former Drexel co-workers, many of whom resent the man for having made so much more money than they did. In addition, Ackerman's colleagues hold him responsible for a good share of the blundering that pushed Drexel into bankruptcy. What finally killed the firm was the huge inventory of unsold, nearly worthless junk bonds that it accumulated in 1989 as it rushed a series of ill-conceived underwritings into the fading junk-bond market. Other Drexelites say that Ackerman rammed through several of the very worst of these last-ditch deals, including a Paramount Petroleum Corp. financing that cost Drexel most of the $60 million it put at risk.
NO DEALMAKING. Ackerman was penalized with a big pay cut, and he voluntarily shipped out to London. Four months later, Drexel was bankrupt. For Ackerman, the timing of Drexel's Chapter 11 filing was providential. Last February, Drexel sued hundreds of ex-employees seeking the return of $250 million in bonus payments. Ackerman was not among them. Because he was paid more than a year before the Chapter 11 filing, not a penny of his $165 million bonanza is recoverable under the bankruptcy code. Grouses a former Drexel banker: "Peter Ackerman is a real Teflon guy."
Unlike some other, lower-ranking Milken aides, Ackerman neither cut a deal with prosecutors to testify against his boss in exchange for immunity from prosecution nor was indicted himself. However, the extent to which Ackerman was investigated in the government's criminal probe is unclear. The criminal cases against Milken and Drexel consisted mainly of allegations of illicit dealings with Ivan F. Boesky, the infamous arbitrageur turned government witness. Certainly, Ackerman was fortunate that his position did not require him to deal regularly with Boesky.
By contrast, Ackerman figured prominently in much broader civil charges brought in 1991 by the Federal Deposit Insurance Corp. and the Resolution Trust Corp. The FDIC and RTC sued Milken, Ackerman, and two dozen others on behalf of failed S&Ls that traded with Drexel. The suit alleged that the "Milken group" routinely manipulated securities markets through a Byzantine network of 280 very private partnerships that reaped huge profits, often at the expense of Drexel's clients. According to the FDIC's complaint, Ackerman owned an interest in 150 of the partnerships and "was involved in making trading and investment decisions" for many of them. Milken, Ackerman, and the others named in the FDIC suit denied any wrongdoing.
GOOD BUY. Many of the most lucrative partnerships bought equity in Drexel-financed leveraged buyouts--Ackerman's specialty. For example, in financing the LBO of Storer Communications Inc. in 1985, the partnerships allegedly purchased for $4 million warrants promised to junk-bond buyers. In 1988, the FDIC says, the warrants were sold at a profit of $246 million. Milken took $40 million and Ackerman got the next biggest share--nearly $38 million, which, by the way, he pocketed in addition to that $165 million salary.
Like the bulk of the criminal case against Milken, the FDIC's charges will never be tested at trial. In March, a preliminary settlement was announced that would end not only the FDIC action but all 170 of the other civil suits pending against Milken and his ex-colleagues. On July 14, Judge Pollack is scheduled to convene a final hearing in federal court in New York on this so-called "global settlement" of the Drexel litigation. The judge's approval is expected, since he was instrumental in crafting the plan in the first place.
As the settlement now stands, the Drexel defendants collectively would cough up $800 million. This sum would be used not only to settle the current litigation but to cover damage awards from any future lawsuits against the settling defendants. Basically, Milken and the others opted to pay now to eliminate the threat that they might have to pay more later.
For Milken, this assurance was purchased at huge expense--$500 million, which comes on top of the $600 million he paid to settle criminal charges. Milken's share of the civil settlement would chop his net worth by 80%, to $125 million, according to a sworn statement submitted to the court. However, this figure excludes some $300 million held in trust for his wife and children. At Judge Pollack's orders, none of the contributions made by other defendants have been disclosed. Knowledgable sources say, however, that Ackerman would make the second-largest payment, of $80 million, or roughly 15% of his net worth.
Why the disparate standards of settlement? Officially anyway, culpability had nothing to do with it, since no settling defendant had to admit any wrongdoing. The best explanation is, in a word, politics.
UPROAR. When the terms of settlement were unveiled in March, the FDIC was blasted for letting Milken off too easily. Buffeted by the backlash, the FDIC's board voted to reject the settlement crafted by its own lawyers, only to reverse itself a few days later. Amid the uproar, the name Ackerman was scarcely heard. "You could not take away enough money from Mike to satisfy certain people in Washington," one Milken adviser says. "But you won't find anyone walking around the Hill saying, 'We've got to get Peter Ackerman.' They don't even know who the guy is."
Even to former colleagues, Ackerman remains a mystery. "With Peter, you never got too personal," says one Drexelite who was friendly with him. Like Milken, Ackerman never allowed Drexel to publish his photo. And in his dealings with the press he aspired to invisibility and nearly attained it. Even in the growing number of books about Drexel, Ackerman is nothing more than a shadowy bit player.
He has taken self-effacement to an almost literal extreme, adopting and shedding a series of identities so seemingly contradictory that they tended to obscure one another. This scholar turned Wall Street dealman turned scholar was raised in a middle-class Jewish household and even attended yeshiva before graduating from Far Rockaway High School in Brooklyn. Yet during his college years at Colgate University and the Fletcher School he became a devout follower of Christian Science after meeting Joanne Leedom, whose mother was a Christian Science teacher. Leedom worked as a reporter for the Christian Science Monitor from 1969 to 1972. Ackerman and Leedom were married around 1971 and have two sons.
`MASS OF CONFLICTS.' Although he specialized--brilliantly--in political science all through college, Ackerman followed his father and older brother into commerce. In 1973, he joined Drexel as administrative assistant to its president after "failing at a quixotic effort to improve Third World living standards by setting up a pan-African trading company that trucked cattle from Niger to Lagos," according to Merchants of Debt: KKR and the Mortgaging of American Business by George Anders. Says one of Ackerman's early Drexel mentors: "Peter had a burning desire to prove himself in business but also had a strong, almost religious belief in doing good works. He was a mass of conflicts in that respect."
Ackerman struck his co-workers at Drexel as a miscast academic--highly intelligent but theoretical, quirky, and slovenly. Yet he had a subtle talent for cultivating people able to further his career, notably Milken, who even then was secretively making a fortune. One of Ackerman's first bosses was startled to learn from his young assistant exactly how much Milken was making. This fellow was even more startled in 1978 when Ackerman accepted Milken's offer to join his junk-bond group, which promptly decamped to Beverly Hills.
Impressed with Ackerman's unconventional intellect and breadth of knowledge, Milken made Ackerman his special projects man in the freewheeling Beverly Hills operation. This meant helping Lowell Milken, Michael's brother, set up many of the partnerships later investigated by the FDIC. It also meant custom-crafting financings for Occidental Petroleum Corp. and other major clients. And when Drexel began financing LBOs in the early 1980s, Milken turned to Ackerman, who, by all accounts, was an ingenious, tenacious financier.
Milken demanded fanatical effort, and Ackerman delivered, eventually establishing himself not only as the linchpin of many of Drexel's most important client relationships but as a buffer between Milken and the rest of the firm. "Peter's role just grew and grew until he became Michael's alter ago," says another member of Milken's inner circle. "He quoted Mike all the time and started to talk just like him." In terms of appearance, meanwhile, Ackerman was transformed from a "frumpy, overweight, college-professor type to this sleek, blue-suited, Turnbull & Asser deal machine."
In short, Ackerman was absorbed into Milkenism as thoroughly as he had embraced Christian Science. Indeed, he appears to have been simultaneously devoted to both. Like Milken, Ackerman spent quite modestly on creature comforts during his years of immodest income. Even so, how could Ackerman have reconciled his junk-bond dealings with the staunch antimaterialism of Christian Science? Only a novelist could plausibly answer that question. The person who knows Ackerman best, Joanne Leedom-Ackerman, hasn't written such a novel, though she did leave a clue about her own means of coping in The Dark Path to the River.
GOOD CAUSES. Published in 1988, Dark Path features a young investment banker and his ex-journalist wife, Mark and Jenny Rosen. In counterbalance to Mark's mounting income, Jenny writes checks. "Mark called such checks her payments to the gods, her attempt to balance an imbalanced world. . . . When they went on vacations, she came home and wrote checks to camp scholarship funds," Leedom-Ackerman writes. "When they bought new clothes, she contributed to Good Will."
Of course, in this case, truth is a whole lot richer--and more problematic--than fiction. How does one go about appeasing the gods for a $165 million Drexel paycheck?
FROM WALL STREET TO VILNIUS 1968 Graduates from Colgate University 1971 Earns second master's degree from the Fletcher School at Tufts 1973 Hired by Drexel's president as his assistant 1976 Earns PhD from the Fletcher School 1978 Joins Milken's junk-bond group and moves to Beverly Hills 1981 Established as Milken's special projects aide 1984 Works on his first buyout with Kohlberg Kravis Roberts & Co. 1988 Plays the critical role in financing KKR's $26 billion buyout of RJR Nabisco in Milken's absence; receives $165 million paycheck 1989 Moves to London just four months before the eve of Drexel's bankruptcy 1990 Leaves Drexel and is appointed visiting fellow at the International Institute of Strategic Studies 1991 Confers with top Lithuanian officials in barricaded Parliament building in Vilnius 1992 Agrees to pay $80 million to settle civil suits DATA: BW