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Bonds - Michael R. Milken: Genius, Villain, Or Scapegoat?

junk securities business market

Few business personalities have attracted as much attention—both negative and positive—as bond market financier Michael R. Milken. After earning an estimated $1.1 billion in the 1980s as the head of Drexel Burnham Lambert's SECURITIES branch, Milken fell from grace in the press and in the eyes of many investors. In 1990 the Securities Exchange Commission charged Milken with securities FRAUD. In U.S. district court, Milken was fined $600 million, permanently barred from engaging in the securities business, and sentenced to ten years behind bars. Some of Milken's associates believed that he had been made a scapegoat; Milken's prosecution, they argued, was little more than an attempt to pass judgment on the 1980s, sometimes cast as the decade of greed.

Milken had formerly been heralded by the Wall Street Journalas one of the century's most important financial thinkers. In the 1970s, after finishing studies at the University of Pennsylvania's Wharton Business School, Milken was early in anticipating the boom of the JUNK BOND market. He used his understanding of trends in investment activity, along with innovative approaches, to capitalize on what he called high-reward bonds. The junk bond boom led to both Milken's ascent and his incrimination. Milken's correct assessment of the junk bond boom paid off for him. While he worked for the powerful Drexel Burnham Lambert firm, his profits made him a billionaire. But how he made those profits also led to his downfall. The government held evidence implicating Milken in manipulation of stocks, insider trading, and BRIBERY of investment managers.

With fines and damages in civil lawsuits totaling $1 billion, Milken became one of several news-making, white-collar criminals of the 1980s. After his sentencing, the Wall Street Journalretracted its praise of the man, saying that "evidence now suggests that Mr. Milken's theory was wrong—and that he was far from the genius he seemed to be about junk bonds." (National Review, August 31, 1992). Milken's theory held that the high yields of junk bonds would draw investors to purchase many of them and that defaults on these securities would be few. The intense corporate competition of the 1980s waned; however, and in later years, investors moved away from junk bonds in search of other investment opportunities. Following his release from prison, after serving two years of his ten-year sentence, Milken was invited to lecture on ethics in business at the University of California, Los Angeles. To critics, however, Milken remained an icon of the money-mad 1980s, a financial wizard driven by the promise of vast wealth to push the limits of SECURITIES LAW. The one-time billionaire reemerged from prison with $300 million from his days as the king of junk bonds, which he used entrepreneurially in the education market, most notably as the brainchild behind Knowledge Universe, a company that owned several other education training and consulting companies, including the popular Leapfrog Enterprises (makers of LeapPad learning aids). Additionally, Milken became more visible in his philanthropic endeavors, particularly favoring prostate cancer research and Milken creations such as the Milken Family Foundation, the Milken Institute, and Mike's Math Club.

FURTHER READINGS

Bailey, Fenton. 1992. Fall from Grace: The Untold Story of Michael Milken. Secaucus, N.J.: Carol Pub. Group.

Fischel, Daniel R. 1995. Payback: The Conspiracy to Destroy Michael Milken and His Financial Revolution. New York: HarperBusiness.

Platt, Harlan D. 2002. The First Junk Bond: A Story of Corporate Boom and Bust.Washington, D.C.: Beard.

CROSS-REFERENCES

Investment; Stock; Stock Market.

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