Michael Milken

Michael Robert Milken
Born:	July 4, 1946 Encino, California
Charges:	Securities fraud, Conspiracy, Tax evasion, Racketeering (dropped in plea deal)
Sentence:	10 years (reduced to 2 years, served 22 months)
Facility:	Federal Prison Camp, Pleasanton
Status:	Pardoned (2020)

Michael Robert Milken (born July 4, 1946) is an American financier and philanthropist who served 22 months in federal prison after pleading guilty to securities violations in connection with the junk bond market he pioneered during the 1980s, and who received a full presidential pardon from Donald Trump in February 2020. Milken, known as the "Junk Bond King," revolutionized corporate finance by developing the market for high-yield bonds that funded corporate takeovers, leveraged buyouts, and startup companies throughout the 1980s. At the height of his power at Drexel Burnham Lambert, he earned hundreds of millions of dollars annually and wielded enormous influence over American corporate structure. His fall came after Ivan Boesky, convicted of insider trading, implicated Milken in illegal activities. In 1990, Milken pleaded guilty to six felonies—securities fraud and tax violations but not racketeering or insider trading—and was sentenced to ten years in prison and fined $600 million. His sentence was later reduced to two years, and he was permanently barred from the securities industry. Since his release, Milken has reinvented himself as a philanthropist, funding medical research and education through the Milken Family Foundation and the Milken Institute. His 2020 pardon, supported by prominent figures including Rudy Giuliani, Sheldon Adelson, and Rupert Murdoch, sparked debate about presidential clemency and white-collar crime.

Summary

Michael Milken's story encompasses the excesses of 1980s finance, the consequences of securities fraud, and the possibilities for rehabilitation and redemption after criminal conviction. His creation of the high-yield bond market fundamentally changed how American companies raised capital and how corporate takeovers were financed, earning him both enormous wealth and eventual criminal prosecution. His case raised enduring questions about the line between aggressive financial innovation and securities fraud, and about how society should treat white-collar offenders who engage in extensive philanthropy after serving their sentences.

Milken's original indictment included 98 counts, including racketeering charges that could have resulted in decades in prison. His eventual plea to six felony counts represented a negotiated resolution that avoided the most serious charges while still resulting in significant punishment. The $600 million in fines he paid represented an unprecedented financial penalty at the time, and his permanent bar from the securities industry ended his Wall Street career. Yet the reduction of his sentence from ten years to two, and his service of only 22 months, struck many observers as lenient given the scope of his activities.

The three decades between Milken's release and his pardon saw him build an impressive record of philanthropy, particularly in medical research and education. The Milken Institute became a respected convener of business and policy leaders, and Milken personally funded research into prostate cancer after his own diagnosis. These activities earned him powerful supporters who advocated for his pardon, though critics argued that wealthy criminals should not be able to buy redemption through philanthropy.

Background

Early Life and Education

Michael Robert Milken was born on July 4, 1946, in Encino, California. He attended Birmingham High School in the San Fernando Valley and went on to earn a bachelor's degree from the University of California, Berkeley, in 1968. He then obtained his MBA from the Wharton School at the University of Pennsylvania, where he graduated with highest honors.

Even as a student, Milken became fascinated with low-rated corporate bonds—securities that paid higher interest rates because they carried greater risk of default. His research convinced him that the market overestimated the default risk of many below-investment-grade bonds, creating opportunities for investors willing to accept their higher volatility.

Rise at Drexel Burnham Lambert

Milken joined Drexel Burnham Lambert in 1969 and quickly established himself as an expert in high-yield bonds. He built a trading operation that dominated the market for these securities, which became known as "junk bonds" because of their below-investment-grade ratings. From a small operation, Milken built what would become the most profitable division of Drexel Burnham Lambert.

In 1978, Milken moved his operation to Beverly Hills, California, where he ran his high-yield bond department from an X-shaped trading desk that became legendary on Wall Street. His group operated with unusual autonomy from Drexel's New York headquarters, and Milken exercised enormous influence over the companies that relied on his ability to raise capital for them.

The Junk Bond Revolution

Milken's innovation was not just trading existing high-yield bonds but using them to finance corporate activity that had previously been impossible. He demonstrated that companies without investment-grade credit ratings could raise substantial capital through bond offerings, and that these offerings could fund leveraged buyouts, hostile takeovers, and startup ventures. This opened corporate finance to a new class of entrepreneurs and raiders who had previously been shut out of capital markets.

Throughout the 1980s, Milken financed many of the decade's most notable corporate transactions. His clients included Carl Icahn, T. Boone Pickens, and other corporate raiders who used junk bond financing to acquire companies far larger than their own resources would have permitted. Milken's annual High Yield Bond Conference, known as the "Predators' Ball," became a must-attend event for dealmakers seeking financing.

At his peak, Milken earned $550 million in a single year (1987), compensation that reflected his unique position at the center of the leveraged buyout boom. His income and influence made him one of the most powerful figures in American finance.

Indictment, Prosecution, and Sentencing

The Boesky Connection

Milken's downfall began with the conviction of Ivan Boesky, a stock speculator who had made enormous profits trading on advance knowledge of corporate takeovers. In 1986, Boesky pleaded guilty to insider trading and agreed to cooperate with federal prosecutors. His cooperation implicated Milken and Drexel Burnham Lambert in illegal activities.

Boesky's information triggered an extensive investigation by the Securities and Exchange Commission and federal prosecutors. The investigation focused on whether Milken had engaged in insider trading, stock manipulation, and other securities violations in connection with his junk bond operations.

Indictment

In March 1989, a federal grand jury indicted Milken, his brother Lowell Milken, and associate Bruce L. Newberg on 98 counts of racketeering, securities fraud, and other offenses. The racketeering charges were particularly significant because they carried severe penalties and allowed prosecutors to seek forfeiture of allegedly ill-gotten gains. If convicted on all counts, Milken faced the possibility of decades in prison.

The indictment alleged that Milken had engaged in a pattern of illegal activity including insider trading, stock manipulation, "parking" securities to evade net capital requirements, and defrauding clients. The scope of the charges reflected prosecutors' view that Milken's operation involved systematic illegality rather than isolated violations.

Guilty Plea

In April 1990, Milken pleaded guilty to six felony counts: three counts of securities fraud, two counts of tax fraud, and one count of helping a client file a false tax return. Notably, Milken did not plead guilty to racketeering or insider trading—the most serious charges in the original indictment. As part of the plea agreement, charges against his brother Lowell were dropped.

The crimes to which Milken pleaded guilty involved various forms of securities manipulation: helping clients conceal stock positions, engaging in sham transactions, and filing false tax returns. While serious, these offenses were less dramatic than the racketeering and insider trading charges that had been dropped.

Sentencing

On November 21, 1990, Judge Kimba Wood sentenced Milken to ten years in federal prison—a sentence that shocked observers who had expected leniency after the dropped charges. The judge also imposed a $600 million fine, the largest individual fine in history at that time, and ordered 1,800 hours of community service annually for three years following release.

Judge Wood explained that the sentence reflected the seriousness of Milken's offenses and his abuse of a position of trust. She noted that Milken had stood at the center of the junk bond market and had used that position to engage in illegal activity. The ten-year sentence was intended to send a message about the consequences of securities fraud.

Sentence Reduction

In 1992, Judge Wood reduced Milken's sentence to two years, crediting his cooperation with prosecutors in other cases. This dramatic reduction—from ten years to two—provoked criticism that Milken had received preferential treatment due to his wealth and connections. Milken ultimately served 22 months at the Federal Prison Camp in Pleasanton, California, before his release in 1993.

In addition to his prison sentence, Milken was permanently barred from the securities industry by the SEC. This prohibition, which survived his pardon, prevents him from working as a broker, dealer, or investment adviser.

Prison Experience

Milken served his sentence at Federal Prison Camp, Pleasanton, a minimum-security facility in California. Prison camps, the lowest security level in the federal system, typically house non-violent offenders and lack the fences and armed guards of higher-security facilities. Milken's assignment to a camp reflected his status as a non-violent, first-time offender.

During his incarceration, Milken reportedly tutored other inmates for their GED examinations and adapted to the routines of prison life. His 22-month sentence, while significant, was far shorter than the decade originally imposed and the multiple decades he might have faced had he been convicted at trial on all original charges.

Post-Release Career

Philanthropy

Following his release, Milken devoted himself to philanthropy, particularly in medical research and education. The Milken Family Foundation, which he and his brother Lowell had established in 1982, expanded its activities significantly. The foundation supports education reform, medical research, and public health initiatives.

Milken's philanthropic focus on medical research intensified after his 1993 diagnosis with prostate cancer. He founded the Prostate Cancer Foundation, which has funded extensive research into the disease. His medical philanthropy has earned praise from researchers and patients who credit Milken-funded research with advancing treatment options.

The Milken Institute

In 1991, Milken founded the Milken Institute, a nonprofit, nonpartisan economic think tank that hosts conferences and produces research on economic policy. The Institute's annual Global Conference brings together business leaders, politicians, and academics to discuss economic issues. The organization has become a respected voice on economic policy despite its founder's criminal history.

Presidential Pardon

On February 18, 2020, President Donald Trump granted Milken a full pardon. The pardon was supported by an unusual coalition of figures including casino magnate Sheldon Adelson, media mogul Rupert Murdoch, Transportation Secretary Elaine Chao, and Trump attorney Rudy Giuliani. The White House statement praised Milken as "one of America's greatest financiers" and cited his philanthropic work since his release.

The pardon did not restore Milken's ability to work in the securities industry—his SEC bar remained in effect, and he would need to apply for a new license to return to trading. However, the pardon did restore his civil rights and represented an official acknowledgment of his rehabilitation.

Critics of the pardon argued that it sent the wrong message about accountability for financial crimes and that Milken's ability to engage in extensive philanthropy was itself a product of his ill-gotten gains. Supporters countered that three decades of charitable work demonstrated genuine rehabilitation and that the pardon recognized Milken's contributions to society since his release.

Public Statements and Positions

Milken has generally avoided relitigating his criminal case in public, focusing instead on his philanthropic work and economic commentary. He has not claimed innocence of the crimes to which he pleaded guilty, though he has suggested that his prosecution was motivated partly by hostility to his innovations in corporate finance.

His public statements emphasize the positive potential of high-yield financing to create opportunities for companies and entrepreneurs who lack access to traditional capital sources. He argues that the junk bond market he created enabled economic growth and job creation that would not otherwise have occurred.

Terminology

• Junk Bond: A high-yield bond with a below-investment-grade credit rating, carrying higher risk and higher potential return than investment-grade bonds.

• Leveraged Buyout: Acquisition of a company using a significant amount of borrowed money, often secured by the assets of the company being acquired.

• Racketeering: Engaging in a pattern of illegal activity as part of an enterprise; charged under the federal RICO statute.

• Securities Fraud: Criminal deception in connection with the purchase or sale of securities.

See Also

• Ivan Boesky - Insider trader whose cooperation led to Milken's prosecution
• Jordan Belfort - "Wolf of Wall Street" and fellow 1980s securities fraudster
• Securities Fraud
• Presidential Clemency and Pardons
• Federal Prison Camps - Lowest security facilities in the BOP system
• Cooperation and Substantial Assistance

Frequently Asked Questions

Q: Why did Michael Milken go to prison?

Milken pleaded guilty in 1990 to six felonies including securities fraud and filing false tax returns. The charges stemmed from his role in various securities violations while working as the head of the high-yield bond department at investment bank Drexel Burnham Lambert. He was accused of helping Ivan Boesky, who was convicted of insider trading, and of manipulating stock prices and defrauding clients. The original 98-count indictment was reduced as part of a plea agreement.

Q: How long was Michael Milken in prison?

Milken was sentenced to 10 years in federal prison in November 1990, but the sentence was later reduced to two years after he cooperated with prosecutors in other cases. He served 22 months at a minimum-security federal prison camp in Pleasanton, California, before being released in 1993. He was also ordered to pay $600 million in fines and restitution—one of the largest financial penalties imposed on an individual at that time.

Q: Was Michael Milken pardoned?

Yes, President Trump granted Milken a full pardon on February 18, 2020, more than 30 years after his conviction. The pardon came after years of lobbying by Milken's supporters, who pointed to his philanthropic work, particularly in medical research funding for prostate cancer after his own diagnosis. Critics argued the pardon was inappropriate given the scale of his fraud and the lives damaged by the junk bond collapse.

Q: What were junk bonds and why was Milken called the "Junk Bond King"?

Junk bonds are high-yield, high-risk bonds issued by companies with lower credit ratings. Milken pioneered the use of these securities for corporate takeovers and leveraged buyouts during the 1980s, arguing that the higher interest rates compensated for the added risk. He earned the nickname "Junk Bond King" because Drexel Burnham Lambert, largely through Milken's department, came to dominate this market. At the peak of his career, Milken personally earned over $500 million in a single year.

Q: What does Michael Milken do now?

After his release and pardon, Milken has focused on philanthropy through the Milken Institute, a nonprofit think tank he founded in 1991, and the Milken Family Foundation. He has donated hundreds of millions of dollars to medical research, particularly prostate cancer research after his own 1993 diagnosis. He also hosts an annual Global Conference that brings together business and political leaders. His net worth is estimated at several billion dollars.