NEW YORK, APRIL 14 -- Michael Milken, Drexel Burnham Lambert Inc.'s junk bond chief who is under federal indictment on charges of racketeering and securities fraud, agreed today to set aside $600 million, plus his share of Drexel stock valued at $100 million, to ensure that the government can recover penalties against him if he is convicted. The $600 million, half in cash and half in securities, is the largest sum ever posted under federal racketeering laws. The U.S. attorney's office agreed to the arrangement after two weeks of negotiations with Milken's lawyers. Under the same agreement, Milken's brother and codefendant, Lowell Milken, will set aside $50 million. Bruce Newberg, the third person charged, will set aside $1.6 million. The government had said in the 98-count indictment that it intended to seek an unprecedented $1.8 billion in restitution from the three. The agreement allows the defendants to invest the money, with the government's approval, and reap the interests and dividends earned by those accounts. U.S. District Court Judge Kimba Wood also set $1 million bail each for the Milkens, who were charged with insider trading and fraud after a two-and-a-half year investigation that grew out of revelations made by Ivan F. Boesky. Boesky, who pleaded guilty to insider trading, is now serving a three-year prison term. Before Wood entered her bail decision, lawyers on both sides engaged in a lively debate on the Milkens as bail risks. Assistant U.S. Attorney John K. Carroll, saying that "no two persons are as well placed to support themselves if they chose to run," asked for $250 million bail for Michael Milken and $25 million for Lowell Milken. Carroll said the brothers, if convicted, faced 40 years in prison and the forfeiture of a staggering sum of money, and that prospect serves as a "powerful incentive" to flee. "In white-collar cases, just as in any other cases, the defendants have to post some securities to ensure their return," Carroll said. Arthur Liman, representing Michael Milken, immediately handed over his client's passport to Carroll to show that Milken had no intention of fleeing and asked Wood to release Milken without bail. "My client is not only rooted and anchored to the community, there is nothing worse for Michael Milken than not to be in America," Liman said. "His whole philosophy has been investment in America. "When I look at this whole picture, I don't understand why, except for window dressing purposes, the government is asking for bail," he said. Milken, who lives with his wife and three children in the house Clark Gable once occupied in Encino, Calif., quietly watched the proceeding. Liman, in an apparent reference to John A. Mulheren, a Wall Street trader who was charged with threatening to shoot Boesky, said, "the only thing my client wants to do is for me to kill him {Boesky} on the witness stand." Milken let out a laugh at the remark. Michael Armstrong, Lowell Milken's lawyer, said his client's roots in Los Angeles "are the roots of a redwood. It's absurd to suggest that he will run. If he's smart enough to run he would have run a long time ago." Armstrong said that while his client earned $102 million since 1978, he has "paid well over $50 million in taxes and contributed in excess of $20 million to charities" in that period. "In order to put pressure on Michael Milken," Armstrong argued, "the government decided to bring Lowell Milken in as a hostage in this case." When it appeared that Liman and Armstrong were scoring points with the judge in their arguments, Lowell Milken smiled broadly, at one point covering his wide grin with his hand. While calling the Milken brothers "excellent candidates for bail," Wood nevertheless set $1 million personal recognizance bond for each and asked them to put up their residences as collateral. Wood also required the Milkens to surrender their passports and not make any trips abroad without court approval. Since the indictment on March 29, both Milkens have been on leaves of absence from Drexel.