Susan Reed
December 16, 1991 12:00 PM

ALTHOUGH FEW PEOPLE REALIZED IT AT the time, May 12, 1986, would become a defining day in American financial history. At 2:46 P.M., James B. Stewart recalls, he was sitting in the newsroom of The Wall Street Journal when an announcement came over the ticker: A Drexel Burnham Lambert investment banker named Dennis Levine had been charged with insider trading. Remembers Stewart: “I turned to a colleague and said, ‘This is it, the end of Wall Street as we know it.’ ”

What began to slowly unravel with Levine’s indictment was “the greatest criminal conspiracy the financial world has ever known,” writes Stewart, 40, who has painstakingly reconstructed the signature scandal of the ’80s in his best-selling Den of Thieves (see review, Pages Picks & Pans). The book, hailed by Washington Post reviewer Robert Sherrill as “full of mazes and Wall Street idiosyncracies—but told with magical clarity,” exposes a web of greed and illegality that underlay Wall Street’s much touted heyday of big deals. Before the decade was out, Levine would confess to $12.6 million in illegal insider-trading profits. Arbitrageur Ivan Boesky would pay $100 million in fines and spend two years in jail. “And then there was Michael Milken,” writes Stewart, now the page one editor of the Journal, “whose crimes were far more complex, imaginative and ambitious than mere insider trading.”

Stewart’s portrait of Milken—the secretive Drexel junk-bond king who earned $550 million in 1986 alone—is scathing. Thieves details not only his Byzantine, mad-genius financial maneuvers with Boesky and others, but also his haughty, sometimes manipulative behavior with clients and colleagues. It also describes what Stewart says was a vast, expensive pretrial public relations campaign designed to recast Milken as a shy, kindhearted philanthropist.

That campaign has resumed now that Milken is appealing the 10-year sentence he received after pleading guilty to six felonies related to securities fraud. But the tactics have changed. The photos of Milken taking underprivileged boys to the ballpark have been replaced by a media assault on Jim Stewart. In expensive full-page newspaper ads, op-ed pieces and angry letters, Milken’s new defense lawyer, Alan Dershowitz, has leveled charges of anti-Semitism against Stewart and impugned the journalistic integrity of the Journal. “I’ve never been the subject of an ad hominem attack before,” says Stewart, who finds the ads “painful, hateful and stupid.”

Winner of a 1988 Pulitzer Prize with Daniel Hertzberg for his reporting on the 1987 stock market crash and the insider-trading scandal, Stewart grew up in Quincy, Ill., where his father is sales manager of a local TV station and his mother is active in community affairs. He edited the school newspaper at DePauw University, then entered Harvard Law School, intending in use his degree to “do good deeds.” He started at the top, hired by the prestigious New York City law firm of Cravath, Swaine & Moore. One night, a partner in the firm took the associates out to a very expensive restaurant. “I remember telephoning my parents and boasting that the wine cost $90 a bottle,” Stewart says. “My mother cut me right off. ‘That’s disgusting.” she said. And I realized, ‘You know, she’s right. What am I doing here?’ ”

Stewart jumped to a then upstart publication called The American Lawyer and began churning out investigative pieces about law, as well as his first best-seller, The Partners. In 1983 he was hired away by The Wall Street Journal, where he began covering Wall Street’s mergers-and-acquisitions mania. He was fascinated by Levine, Boesky and others—but suspicious.

Shortly after Levine was indicted, Stewart contracted to write a book about insider trading. “At first people were afraid to talk,” he says. “Later, people wanted to talk because they were sick of the lies. Milken’s people said they were innocent, and they weren’t. People said, ‘You really ought to know the truth.”

“Jim’s a good reporter because he’s interested in how people act and in the meaning of their acts,” says the Journal’s deputy page one editor, Jane Berentson. “He’s a humanist.”

Ultimately, Stewart measures the costs of the ’80s financial scandals in human terms. “Employees of debt-ridden companies lost their jobs. Investors lost money. Billions of dollars of Milken bonds ended up in the failed savings and loans. Taxpayers are making up those losses. Violations of securities laws are not victimless crimes,” he says adamantly. “We’re all the victims.”

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