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Michael Robert Milken is a prominent American financier who almost single-handidly created a market for junk bonds during the 1980s. After he was sent to prison on finance-related charges, he was used as the epitome of this period's greed. His nickname is "The Junk Bond King."
After he served his sentence, Milken launched a successful public relations campaign to cast himself as a great innovater and financier, attempting to smooth over or deny the less savory aspects of his past. He also devoted himself to charity work, and attempted to create philosophical and economic justifications for his past actions.
Biography
Milken was born on July 4, 1946, in Encino, California. He received his Bachelor's degree from the University of California, Berkeley and his MBA from the Wharton School at the University of Pennsylvania. Mike Milken's Home Page (http://www.mikemilken.com)
His younger brother is Forbes 400 listed Lowell Jay Milken ([1] (http://www.forbes.com/finance/lists/54/2004/LIR.jhtml?passListId=54&passYear=2004&passListType=Person&uniqueId=GDKN&datatype=Person)), his father, Bernard Milken, was a lawyer and a CPA. His father taught him about business from an early age, when he was 8 years old his father told him, "Never forget, businesses are built on trust, and trust starts with the balance sheet. At that age he "didn't
really understand what a balance sheet was". But he'd "shown a knack for numbers" and his father "encouraged this gift" by teaching him "how he analyzed different businesses".
Milken was a bright child who excelled in school, and was a leader in community service, earning a Junior Chamber of Commerce award given to one local student for the most community service along with academic achievement. Sports came easily to Milken as well, and he excelled at basketball. At he initially majored in mathematics, but changed to business after seeing first-hand the devastation of the 1965 Watts Riots. Milken graduated from the University of California at Berkeley with highest honors.
As a Wharton MBA, Milken did substantial research on what he believed to be an underfunded market: high-yield debt. At the time, these were mostly bonds issued by "fallen angels," companies that got into difficulties, causing the price of their debt to fall. Even with a higher interest yield, only a few brave investors were willing to buy them. Milken was going to figure out how to make a bigger market for them. He became an expert on corporate capital structure.
Work on Wall Street
In January 1969 he went to work for Drexel Harriman Ripley as assistant to the chairman. He told Frederick Joseph, who later became the CEO of Drexel, "I don't know if I am smarter than anyone else but I can work 25 percent harder." He undertook, as a matter of routine, to work a fifteen hour day. He is told to usually have arrived at 4:30 a.m. -- carrying two canvas bags full of reports and memos that he had taken home to read -- and remain there until at least 7:30 at night. "Lunch," usually a sandwich and soda, was brought in on a tray for him, and everyone else, at 10 a.m. He neither smokes or drinks -- not even coffee, explaining, "I don't need stimulants."
When Drexel merged with Burnham and Company in 1973, Milken headed the non-investment-grade bond department, an operation that earned a remarkable 100% return on investment. By 1976, Milken's income was estimated at $5 million a year. In 1978, Milken returned to his home state of California so that he and his family could spend more time with his ailing father, now suffering from cancer. He moved his High-Yield Bond Department to Los Angeles and purchased a house in Encino. Milken's younger brother, Lowell, also worked at the Los Angeles office.
During the 1980s he became known as a controversial financial innovator whose work at investment bank Drexel Burnham Lambert, Inc. greatly expanded the use of high yield debt (junk bonds) in corporate finance and acquisitions, which fueled the 1980s leveraged buyout boom. Through his business acumen, the network of contacts and clients, and the trust he had earned from the "buy side" gave him the ability to raise tremendous amounts of money. He was a big contributor to the success of his employer, Drexel Burnham Lambert, that largely due to Milken, moved from $1.2 million in fees to over $4 billion in 1986, far and away the most profitable firm on Wall Street.
In June 1989, Milken resigned from Drexel to form his own company, International Capital Access Group. This new venture was supposed to help workers and companies in building businesses.
While he is best know for his successful financing through high yield bonds, he also employed equity-based securities, hybrids and scores of other financial instruments in more than a dozen asset classes to help clients grow.
In his own words: "Building the right capital structure can be as important as managing other parts of a business. This was true for many of the growing companies that I had the opportunity to work with over the past 35 years." ([2] (http://www.mikemilken.com/articles.taf?Page=detail&ID=1))
But Milken didn't just raise capital, he also advised on those "other parts of a business", how to spend the money. Apart from "sell side" underwriting, the firm took in large fees for advisory services. The customers came for underwriting and advice, and the "buy side" bought the securities offered because money raised through Milken made returns. In 1986, for example, not a single one of his companies missed an interest payment.
According to people familiar with the firm, corporate executives cued up in the conference rooms outside Milken's office from early in the morning to late at night. When a meeting began Milken was accompanied by a host of relevant financial experts and executives from Drexel's corporate finance department. There were, not uncommonly, more than twenty people sitting through the meeting. Milken first went on to listen patiently and courteously to their case for buying high-yield underwriting. He then dismissed from the room all but four or five people, and presented his own analysis of, and strategy for, the company. One new potential customer who sat through such a meeting was "stunned" as he described it afterwards, by Milken's intimate knowledge of his company's financial situation.
Legal charges
In 1989 New York District Attorney Rudolph Giuliani charged him with 98 counts of racketeering and fraud and he was indicted by a federal grand jury. None of these charges resulted in a conviction.
Milken pled guilty to five lesser securities and reporting violations. He paid a $200 million fine and another $400 million in settlements relating primarily to civil lawsuits. He was banned for life from the securities industry and was sentenced to ten years in prison - a term later reduced to 22 months, which he served from March 1991 to January 1993.
Making the case special was that the judge found only one transaction that Milken pleaded to that had any economic impact, and that impact, by the court's calculations, was $318,082. The four reporting violations had never before (and has not since) been subject to criminal prosecution. And the trade to reduce income taxes had never before (and has not since) been subject to criminal prosecution.
In 1998, without admitting any guilt, he returned $47 million in fees to settle another SEC lawsuit relating to the 1991 order barring him from the securities industry, which he allegedly overstepped when he advised MCI/News Corp. in a 1995 deal for which he received $27 million. And when he advised Revlon chairman Ronald Perelman on a Revlon/New World Communications deal in 1996, for which he received $15 million. In the same year Time Warner acquiered Turner Broadcasting, for which Milken received $50 million in advisory fees. That deal was not brought up in the court.
Guilty pleas
- Milken planned or thought to engage in a series of unlawful security transactions.
- Charge involving tax fraud. The charge relates to Ivan Boeskys false 13-d statement.
- Milken suggested that Boesky buy MCA stock to hide that Golden Nugget was selling and to assure him no loss in a sale to Drexel.
- Helped a client reduce his income tax liability by selling him two investments and then buying them back at a lower price.
- Failing to disclose in written form an agreed-upon adjustment in transaction prices between Drexel and a client.
After prison term
Upon his release, Milken resumed his philanthropic activities, keeping the focus on education and medical research. Diagnosed with prostate cancer in the same month he was released from prison, January 1993. He told Time Magazine in 1996 that "to say that the biopsy results were devastating would be an understatement", and, "I remember lying in bed with my wife and talking about the Book of Job, wondering how many more challenges were coming my way."
Milken has used his personal fortune and high-level contacts to become an influential voice in economics, education and medical research. Business leaders including Ted Turner and News Corp.'s Rupert Murdoch are today counted amongst his supporters. Directors of his nonprofit foundations include former Intel Corp. Chairman Andrew Grove and retired U.S. Army General Norman Schwarzkopf.
In 1982, he co-founded the Milken Family Foundation to support medical research and education. In 1991 he founded the Milken Institute. In 1993, he founded the Prostate Cancer Foundation, the world's largest philanthropic source of funds for prostate cancer research. In 2003, he launched the Washington, D.C. based "think tank", or according to them, "action tank", FasterCures / The Center for Accelerating Medical Solutions. FasterCures is dedicated to shortening the time it takes to find cures and improved treatment outcomes for the most deadly and debilitating diseases.
The Milken Family Foundations most acclaimed program, the Milken National Educator Awards, was established in 1985 and is now the largest teacher-recognition program in the U.S. operating in partnership with the departments of education in 47 states and the District of Columbia. Dubbed the "Oscars of Teaching" by Teacher Magazine, it has awarded approximately $52 million to honor more than 2,000 K-12 teachers and principals. Each educator receives an unrestricted $25,000 prize and participates in an annual professional development conference.
FORTUNE magazine called Michael Milken The Man Who Changed Medicine (November 29, 2004) for his three decades of leadership of medical research that is helping to produce better treatments and cures for major diseases. Writer Cora Daniels concluded, "No one had ever pulled together the full picture of how - and how much - Milken has shaken up the medical establishment and saved lives
Leaders everywhere are taking notice." One of the nation's best-known prostate surgeons, Patrick Walsh, head of urology at Johns Hopkins says, "Mike's done more for prostate cancer research than anyone in America".
In his own words
The Democratization of Capital
"Things that everyone takes for granted did not exist 30 years ago. A woman did not head any company in the United States that she did not inherit, of any size. There was no capital allocated to women. In 1980 I still received death threats and notices for loaning money to African-Americans. And there was no large company in America headed by an African-American, until the 1980s. And so we had a situation in the United States into the early 1970s where very few financial institutions decided who could have access to capital and who couldnt."
Left off the balance sheet is the value of the asset that Gary Becker, Nobel Laureate in Economics, calls human capital. Professor Becker says that the skills and experience of our people are worth more than half a million dollars per person. By this calculation, traditional assets comprise less than 25 percent of the national balance sheet, which means that true U.S. assets exceed $180 trillion.
The Weakness in Numbers
Excerpts from "The Weakness in Numbers", The Milken Institute Review, 1st Quarter 1999 ([3] (http://www.mikemilken.com/articles.taf)):
To cite just one example, in the 1970's MCI was a small company with a few hundred employees. Traditional lenders, looking at its balance sheet, weren't interested in financing this upstart's quest to take on the industry colossus, AT&T. But with the help of innovative financial tools, MCI financed its growth and
created some 60,000 jobs.
Similar growth through new forms of financing created hundreds of thousands of jobs at such companies as Time-Warner, TCI and many others. In fact, since 1970, while the "investment grade" companies of the Fortune 500 have downsized, eliminating some three million jobs, small and medium-sized companies have created more than 55 million new jobs in the United States. By contrast, in the same time period, Europe has not created a single net new job in the private sector, largely because smaller European companies haven't had comparable access to capital and financial technology.
Controversy over Milken's Accomplishments
Attempts to evaluate Milken's overall accomplishments thus far are difficult to make, as he has attracted both supporters and detractors, and both sides tend to be extremely vocal. This is complicated by the fact that, since Milken is still alive, he has led a large public relations campaign in order to push his accomplishments and cast doubts upon his crimes, despite the fact that he pled guilty. A perusal of his personal web site provides an excellent primer.
Michael Lewis, financial journalist, author of Liar's Poker and a former bond salesman for Salomon Brothers, argued that the crimes for which Milken was imprisoned for were really insignificant compared to the negative results of his legal activity.
For example, Lewis admitted that junk bonds were a great financial innovation that allowed otherwise defunct companies to raise capital. Then he noted how, when the demand for junk bonds became higher than the supply, Milken had others take over otherwise sound companies to create more junk bonds. This process is related in detail in The Predators' Ball.
Likewise, Lewis noted how Milken paid himself $700 million for one year as head of Drexel - a record that stands to this day (without noting that this compensation was the result of a decades-old deal between Milken and I. W. Burnham, allowing Milken to take a cut of his trading profits. At the time, these profits were insignificant given Milken's $2 million in capital. As he expanded his base, his divisions profits rose in tandem).
Milken's writings, such as The Democratization of Capital, were written after, not before, his conviction. This fits with Lewis' sardonic description of Milken's personality in Liar's Power - he depicted Milken as a man who claimed he was promoting capitalism and American business, but only used this idealogy to justify his actions.
The journalist Edward Cohn, on evaluating the work of Milken and his associates to cast him in a better light, called such efforts Milken revisionism.
Appearance in books and magazines
Magazines
Books
See also
External links
Third party articles
About the legal charges
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