Former Milken Associate to Testify for U.S. : Securities: Ex-Drexel junk bond executive Gary Winnick has been ordered to appear. He will receive immunity.

NEW YORK —  Federal prosecutors have added another prominent close associate of Michael Milken to the list of government witnesses who will testify against him.

Gary Winnick, 42, the former head of Drexel Burnham Lambert’s convertible bonds department, was given a federal court order last week granting him immunity from prosecution and compelling him to testify against Milken and others in the criminal racketeering case pending against the former Drexel junk bond chief.

Winnick’s lawyer, Gary P. Naftalis, confirmed that Winnick “received compelled immunity under court order” and said that “under the court order, he has to answer questions when he’s asked.”

Sources close to the case said Winnick had been seeking a deal with prosecutors for some months because of fear that he might become a target of the federal investigation. The sources said the government has subpoenaed records from Winnick. But Naftalis said Winnick had never been notified that he was a target. The lawyer said any testimony that Winnick gives will be as a result of the court order obtained by prosecutors and not because of a voluntary agreement to cooperate.

When Winnick left Drexel in 1985, he became head of Pacific Asset Holdings Limited Partnership, a Beverly Hills-based partnership in which Milken holds a large stake. The partnership was established to invest in junk bonds and leveraged buyouts.

Sources said prosecutors expect that Winnick will testify about allegations that Milken in effect gave kickbacks to managers of mutual funds to induce them to buy junk bonds of doubtful value. The inducements are said to have included valuable warrants--the right to buy stock in a certain company at a certain price within a fixed period of time.

Naftalis refused to comment on which subjects the government hopes Winnick will testify about.

Milken, his brother, Lowell, and former Drexel trader Bruce Newberg were named in a 98-count racketeering indictment returned in March, stemming from alleged securities fraud and insider trading at Drexel. Milken resigned from Drexel in June and has formed his own company, International Capital Access Group.

A federal grand jury in New York is expected to return a new, expanded indictment in the case, although some sources say it may not be finalized until January. As reported, the indictment is expected to contain additional charges and name additional defendants, including Warren Trepp, Drexel’s chief junk bond trader; Alan Rosenthal, a former head of Drexel’s convertible bond unit, and former Drexel bond salesman Peter Gardiner.

At least half a dozen former close Milken associates have agreed to testify against him or are believed to be close to an agreement. Among those who have already agreed are Cary J. Maultasch, a former Drexel stock and bond trader; Charles Thurnher, who kept financial records in Drexel’s Beverly Hills junk bond office; Terren Peizer, a Drexel trader, and James Dahl, a former Drexel bond salesman.

Lawyers for Milken have declined to comment on the investigation or Winnick, and they have charged that leaks about the continuing grand jury inquiry are unfair and will make it difficult for Milken to get a fair trial. Prosecutors also have declined to comment on the investigation.