NEW YORK -- Michael R. Milken has agreed to pay an additional $500 million and a number of his former colleagues at Drexel Burnham Lambert Inc. have agreed to pay $300 million to settle many of the civil lawsuits arising from the failure of the brokerage firm.
Milken had previously put $400 million into a fund to compensate victims of the securities frauds to which he pleaded guilty.
Drexel's insurers have agreed to pay $100 million to settle the claims, making the total settlement $1.3 billion.
Lawyers representing Milken, other Drexel executives, Drexel's insurance companies and the various parties suing them -- which include the Federal Deposit Insurance Corp. and many small investors who joined in class-action suits -- reached a tentative agreement Friday.
U.S. District Judge Milton Pollack, who is presiding over the Drexel case, had ordered the negotiating parties not to discuss the matter until it was approved by the court.
But Judge Pollack confirmed the agreement in a telephone interview yesterdayafter the Los Angeles Times reported that a tentative agreement had been reached.
"What we have is a term sheet that gives us the heads of agreement, and that's all we have at the present time," Judge Pollack said. "A final, signed paper is to be delivered to me on or before March 2." He said terms of the proposed settlement had been mailed to more than 9,000 people affected by the Drexel Burnham Lambert bankruptcy.
Drexel, which came to symbolize the fast-money era of the 1980s, filed for bankruptcy protection Feb. 13, 1990, in the largest collapse ever of a Wall Street firm. The firm had provided fuel for many of the biggest corporate takeovers of the preceding decade, often in the form of speculative debt known as "junk" bonds, which are corporate obligations of companies with low credit standing.
Milken, an evangelist for junk bonds, became the nation's highest-paid executive. In 1987 he took home more than half a billion dollars from Drexel and succeeded in convincing investors that the unusually high interest rates on the junk bonds more than offset the risk that they would not be paid.
Milken was sentenced last year to 10 years in prison for violations of securities laws and was barred for life from the securities business.