FBI Expands Its Role in Bradley Financial Probe

A jurisdictional problem that has hampered the U.S. Justice Department’s investigation into Mayor Tom Bradley’s financial dealings with Drexel Burnham Lambert Inc. has been resolved, and FBI agents in Los Angeles have taken a more active role in the case, sources familiar with the investigation said Friday.

But sources said progress has been slowed while investigators await action in a pending criminal case against junk bond wizard Michael Milken.

A jurisdictional dispute between Los Angeles and East Coast offices of the Justice Department was eliminated when Los Angeles officials became convinced that the matter was worthy of investigation, the sources said.

As a result, the role of FBI agents in Los Angeles was expanded in recent weeks, the sources said, as information gathered by the U.S. attorney’s office in New York was relayed west by Washington.

The Los Angeles FBI office is acting as the investigative arm for the Justice Department’s public integrity section in Washington, which is overseeing the case.

Although the FBI is actively investigating Bradley’s dealings with Drexel, the sources said, no resolution of the case is expected soon. Investigators may have to wait until the Milken case is closer to resolution before they can finish the Bradley inquiry, the sources said.

Milken, who headed the lucrative junk bond section in Drexel’s Beverly Hills office, was indicted with two others, including his brother, Lowell, in March on 98 charges of racketeering and a long list of mail, wire and securities fraud counts. A new indictment, adding new charges, is expected against Milken and others, possibly in October. Milken’s trial on the original indictment is scheduled for next March.

In May, both Bradley and then-House Majority Whip Tony Coelho (D-Merced) became subjects of a separate preliminary criminal investigation related to Drexel. Coelho later resigned from Congress rather than face a House investigation of his personal finances, including a $50,000 loan from Columbia Savings & Loan.

A central question under consideration by investigators is whether Bradley and Coelho illegally received preferential treatment from Drexel. Both acknowledged that they made investment deals through Drexel but denied any wrongdoing.

Bradley purchased $100,000 in junk bonds through Drexel’s high-yield department in Beverly Hills. The March, 1986, transaction involved Gibraltar Financial Corp. bonds not available to ordinary investors. However, Bradley lost money on the investment.

The Justice Department inquiry is also expected to determine whether the two Democratic officeholders were given investment opportunities with the hope or expectation that they would, in turn, provide favorable treatment to Drexel.

A Drexel spokesman has said that earlier this year, Bradley contacted Coelho to urge the Los Angeles congressional delegation to intervene on behalf of Drexel in settlement negotiations with the Securities and Exchange Commission. At the time, the federal agency was seeking to force Drexel to move its junk bond department from Beverly Hills to New York. The unit was allowed to continue operating from Beverly Hills.

The Justice Department’s public integrity section won custody of the Bradley investigation last spring when a dispute over the case developed between the U.S. attorney’s offices in Manhattan and Los Angeles.

The Manhattan office, which has aggressively pursued a series of Wall Street insider trading cases, contended that there were grounds to conduct a preliminary investigation of Bradley. But the Justice Department headquarters in Washington decided that the Manhattan office lacked jurisdiction. At the same time, the Los Angeles office took the position in a memo that there was not sufficient cause to conduct a preliminary inquiry.

The public integrity section at Justice Department headquarters thought that there were sufficient grounds and is overseeing the investigation from Washington.