Michael Milken

Michael Milken
Michael Milken
Born	July 4, 1946 (age 80); Encino, California, U.S.
Occupation(s)	Financier, philanthropist
Known for	Pioneering high-yield bonds ("junk bonds"), philanthropy

Michael Robert Milken (born July 4, 1946) is an American financier recognized for pioneering the market of high-yield bonds—commonly referred to as "junk bonds"—and for his later conviction related to breaches of U.S. securities regulations. During the late 1980s, as the leader of the high-yield bond division at Drexel Burnham Lambert, Milken amassed earnings exceeding $1 billion within four years, setting a U.S. income record at that time. With a net worth estimated at $6 billion as of 2022, he is ranked among the richest people in the world.

In 1989, Milken faced indictment on charges including racketeering and securities fraud amid investigations into insider trading. He admitted guilt to violations involving securities and reporting but denied involvement in racketeering and insider trading. He received a ten-year prison sentence and was fined $600 million (although his official website mentions a $200 million fine). Additionally, the U.S. Securities and Exchange Commission permanently prohibited him from participating in the securities industry. His prison term was later shortened to two years due to cooperation with authorities and good conduct. On February 18, 2020, President Donald Trump granted him a pardon.

Following his release from incarceration, Milken has dedicated himself to philanthropic efforts. He co-established the Milken Family Foundation, serves as chairman of the Milken Institute, and founded medical philanthropy organizations that support research on melanoma, cancer, and other critical illnesses. As a survivor of prostate cancer, he has significantly funded research initiatives targeting this disease.

Early life and education

Born into a middle-class Jewish household in Encino, California, Milken completed his secondary education at Birmingham High School, where he held the position of head cheerleader and worked part-time at a diner. Among his school peers were future Disney president Michael Ovitz and actresses Sally Field and Cindy Williams. In 1968, he graduated with highest honors from the University of California, Berkeley, earning a B.S., gaining election to Phi Beta Kappa, and joining the Sigma Alpha Mu fraternity. He later obtained an MBA from the Wharton School at the University of Pennsylvania. While at Berkeley, Milken was influenced by W. Braddock Hickman—a former president of the Federal Reserve Bank of Cleveland—whose studies highlighted that non-investment grade bonds provided better risk-adjusted returns compared to investment-grade securities.

Career

Leveraging connections made at Wharton, Milken secured a summer position at Drexel Harriman Ripley in 1969. After completing his MBA, he joined Drexel Firestone as director of low-grade bond research with authority over trading decisions. Over a span of seventeen years, he experienced only four months with negative performance.

In 1973, Drexel merged with Burnham and Company to create Drexel Burnham; although Burnham was officially the surviving entity, Drexel’s name took precedence due to its standing among major investment banks. Milken advanced to lead convertible securities and persuaded his superior, Tubby Burnham, to authorize establishing a high-yield bond trading desk. This new division rapidly achieved a 100% return on investment. By 1976, Milken’s annual earnings were estimated at $5 million. Two years later, in 1978, he moved the high-yield bond operation to Century City in Los Angeles, developing it into a central hub for junk bond trading activities.

High-yield bonds and leveraged buyouts

By the mid-1980s, Michael Milken had developed an extensive network of investors in high-yield bonds, including entities such as Fred Carr's Executive Life Insurance Company and Tom Spiegel's Columbia Savings & Loan, enabling rapid accumulation of significant capital.

This financial resource facilitated the growth of leveraged buyout (LBO) firms like Kohlberg Kravis Roberts and the so-called "greenmailers." Many transactions were supported by a "highly confident letter" issued by Drexel's corporate finance division—an informal assurance to provide the required debt financing. Milken’s strong reputation for consistently creating markets in the bonds he managed made these letters effectively dependable commitments.

Advocates like George Gilder contend that Milken played a pivotal role in stimulating economic expansion by unlocking capital trapped in established companies and redirecting it into new market opportunities, thereby contributing to heightened productivity over two decades.

Although some regarded him as the most influential American financier since J. P. Morgan, Milken maintained a notably private profile, reportedly exercising strict control over any photographs taken of him.

Later career

In 1996, Milken and his brother Lowell established Knowledge Universe, which included Knowledge Learning Corporation (KLC), the parent organization of KinderCare Learning Centers, recognized as the largest for-profit child care provider in the United States. Michael Milken served as chairman until its divestiture in 2015.

Additionally, he invested in K12 Inc., a publicly traded education management organization (EMO) that delivers online education services, including to charter school students funded by public tax dollars. K12 Inc. holds the distinction of being the largest EMO in terms of enrollment.

Scandal

According to Dan Stone, a former Drexel executive writing in April Fools, starting from 1979, Milken was under almost continuous examination by the Securities and Exchange Commission for conduct deemed unethical and occasionally unlawful within the high-yield department.

Stone asserts that Milken regarded securities regulations as obstacles to free-market operations and tolerated questionable behavior among his colleagues, although he personally adhered to regulations and frequently sought guidance from Drexel CEO Fred Joseph on ethical matters.

In contrast, sources cited in James B. Stewart's Den of Thieves claim that Milken pursued markups reaching up to five times legal limits.

Harvey A. Silverglate, who defended Milken during appeals, argued in Three Felonies a Day that many of Milken’s pioneering yet legitimate strategies were misunderstood as criminal due to their novelty and profitability.

Ivan Boesky and an intensifying investigation

The SEC's scrutiny intensified in 1986 when arbitrageur Ivan Boesky pleaded guilty to securities fraud and implicated Michael Milken in illicit activities including insider trading, stock manipulation, fraud, and stock parking. This led to both SEC and criminal investigations targeting Drexel, spearheaded by Rudy Giuliani, then U.S. Attorney for the Southern District of New York. While inquiries centered on Milken’s division, he communicated solely through legal counsel. Drexel anticipated cooperating with authorities to minimize prolonged reputational harm.

For two years, Drexel denied any misconduct despite being sued by the SEC in 1988. Giuliani then contemplated indicting Drexel under the Racketeer Influenced and Corrupt Organizations (RICO) Act. Concerned that a RICO indictment would devastate the firm, Drexel entered into plea discussions that ultimately collapsed when Giuliani insisted on Milken’s removal if indicted.

Soon thereafter, Drexel uncovered questionable dealings involving MacPherson Partners, a limited partnership created by Milken for departmental investments. MacPherson acquired warrants for Storer Broadcasting stock amid Kohlberg Kravis Roberts’ leveraged buyout transaction, with Drexel underwriting associated bonds. The warrants were distributed through intricate channels involving money managers previously affiliated with Milken; some acquired warrants personally rather than on behalf of their funds. Warrants were also allocated to Milken’s children, raising potential conflicts of interest.

These warrant transactions violated Drexel’s internal guidelines and breached fiduciary responsibilities held by money managers, potentially constituting bribery intended to influence fund-related decisions. Several money managers were subsequently convicted on bribery charges. The revelation about MacPherson Partners significantly undermined Milken’s credibility with Drexel’s board.

On December 21, 1988, Drexel entered an Alford plea on six counts related to stock parking and manipulation—asserting innocence yet acknowledging insufficient grounds to contest government allegations—and consented that Milken would be required to depart if indicted.

Indictment and Sentencing

In March 1989, a federal grand jury charged Michael Milken, Lowell Milken, and Bruce L. Newberg—a former junk bond trader at Drexel—with 98 counts involving racketeering, mail fraud, and securities fraud. The government sought forfeitures totaling $1.845 billion. The accusations encompassed insider trading, tax evasion, stock manipulation, tax fraud, and stock parking—the practice of hiding Drexel's securities ownership through affiliated entities to secure undisclosed profits during corporate acquisitions. One claim alleged that in 1986, Boesky paid Drexel $5.3 million for Milken’s portion of illicit trading gains, disguised as consulting fees. Shortly after these charges surfaced, Milken left Drexel and established the International Capital Access Group.

Milken’s protégé, Terren Peizer, oversaw accounts implicated in unlawful insider trading and fabricated tax losses under Milken’s supervision. Peizer played a critical role in providing evidence against Milken and testified at the 1990 pre-sentencing hearing in exchange for immunity from prosecution and relief from SEC penalties.

On April 24, 1990, Milken entered guilty pleas to six counts related to securities and tax violations, including assisting in submitting false SEC filings and engaging in tax evasion connected to transactions involving fund manager David Solomon. He also admitted guilt to conspiracy charges tied to these offenses.

Under the terms of his plea agreement, Milken consented to pay $200 million in fines and resolved claims with the SEC by disbursing $400 million to investors harmed by his misconduct. He accepted a lifetime prohibition from participating in the securities industry and agreed to pay $500 million to Drexel investors through a related civil suit.

Some critics contend that Lowell Milken was indicted primarily as leverage to compel Michael Milken’s settlement—a strategy viewed by certain legal experts as ethically questionable. Ultimately, the charges against Lowell were dismissed. Federal authorities also examined other investments linked to the Milken family.

At sentencing, Judge Kimba Wood remarked:

Judge Wood later assessed the total financial damage from Milken’s offenses at approximately $318,000—significantly lower than government estimates—and recommended that Milken become eligible for parole after serving three years. His initial ten-year sentence was subsequently shortened to two years; he ultimately served 22 months.

2013 SEC Investigation

In February 2013, the SEC launched an inquiry into whether Milken breached his lifetime ban from the securities industry by allegedly offering investment advice via Guggenheim Partners. Since 2011, the SEC had been examining Guggenheim’s connections with Milken.

Presidential Pardon

By June 2018, reports indicated that supporters of President Donald Trump, including figures such as Kevin McCarthy, Rupert Murdoch, Sheldon Adelson, Elaine Chao, and former prosecutor Rudy Giuliani—who had been instrumental in securing Milken’s conviction—were advocating for a presidential pardon. Milken had sought clemency through multiple administrations.

On February 18, 2020, President Trump granted Milken a full pardon. Despite this, Milken’s prior securities license remained revoked; he would need to reapply to regain authorization for trading activities.

Philanthropy

According to Forbes, Milken has contributed between 5% and 10% of his wealth to charitable causes, resulting in a philanthropy rating of 3 out of 5. Following his release from prison in 1993, he established the Prostate Cancer Foundation, which by 2010 had become the leading philanthropic supporter of prostate cancer research. Diagnosed with advanced prostate cancer upon release, Milken’s condition has since gone into remission. The foundation partners with Major League Baseball through its Home Run Challenge initiative to promote awareness and raise funds; Milken actively participates in events and broadcasts each season preceding Father's Day.

In 2003, he founded FasterCures, a Washington, D.C.–based think tank dedicated to enhancing the speed and effectiveness of disease research. Its programs include TRAIN, Partnering for Cures, and the Philanthropy Advisory Service.

On March 11, 2014, following donations totaling $80 million—$50 million from the Milken Institute and Family Foundation and $30 million from Viacom chairman Sumner Redstone—George Washington University renamed its public health school in honor of Milken. These contributions support research initiatives and scholarship programs within public health.

In popular culture

Michael Milken was honored as the inaugural winner of the Ig Nobel Prize in Economics in 1991.

The 2016 theatrical work Junk by Ayad Akhtar, which explores the bond trading scandals of the 1980s, draws partial inspiration from Milken's dramatic "fall from grace," incorporating a character modeled after him.

Milken’s name appears in popular television, including a mention by Hank Scorpio in the The Simpsons episode “You Only Move Twice” and by Chris Stevens in Season 6, Episode 5 (“The Robe”) of Northern Exposure, underscoring his impact on perceptions of financial ethics and trust.

Personal life

Milken is married to Lori Anne Hackel, his high school sweetheart. Together, they have three children. He predominantly adheres to a vegetarian lifestyle and has collaborated with Beth Ginsberg to publish two vegan cookbooks.

References

Notes

Further reading

Connie Bruck - The Predators' Ball: the inside story of Drexel Burnham and the rise of the junk bond raiders, New York: American Lawyer/Simon & Schuster, 1988; Penguin paperback (updated), 1989.
Fenton Bailey - Fall From Grace: The Untold Story of Michael Milken, Carol Publishing Corporation, October 1992.
James B. Stewart - Den of Thieves, Simon & Schuster, New York, 1991.
Ben Stein - A License to Steal: the Untold Story of Michael Milken and the Conspiracy to Bilk the Nation, Simon & Schuster, 1992.
Daniel R. Fischel - Payback: the conspiracy to destroy Michael Milken and his financial revolution, HarperBusiness, New York, 1995.
Robert Sobel - Dangerous Dreamers: The Financial Innovators from Charles Merrill to Michael Milken (1993).
Michael Lewis - Liar's Poker: Rising through the Wreckage on Wall Street, W.W. Norton, 1989.

External links

Taking America: How We Got from the First Hostile Takeover to Megamergers, Corporate Raiding, and Scandal, Jeff Madrick, Beard Books, 2003. Accessed March 10, 2019.