Michael Robert Milken

Michael Robert Milken (born July 4, 1946) is an American financier and philanthropist noted for his role in the development of the market for high-yield bonds (also called junk bonds) during the 1970s and 1980s, for his conviction following a guilty plea on felony charges for violating US securities laws, and for his charitable giving.

Milken was indicted for racketeering and securities fraud in 1989 in an insider trading investigation. As the result of a plea bargain, he pled guilty to securities and reporting violations but not to racketeering or insider trading. Milken was sentenced to ten years in prison, fined $600 million, and permanently barred from the securities industry by the Securities and Exchange Commission. His sentence was later reduced to two years for cooperating with testimony against his former colleagues and for good behavior.

His critics cited him as the epitome of Wall Street greed during the 1980s, and nicknamed him the 'Junk Bond King'. Supporters, like George Gilder in his book, Telecosm (2000), state that 'Milken was a key source of the organizational changes that have impelled economic growth over the last twenty years. Most striking was the productivity surge in capital, as Milken ... and others took the vast sums trapped in old-line businesses and put them back into the markets.'

Since his release from prison, Milken has funded medical research. He is co-founder of the Milken Family Foundation, chairman of the Milken Institute, and founder of medical philanthropies funding research into melanoma, cancer and other life-threatening diseases. A prostate cancer survivor, Milken has devoted significant resources to research on the disease. In a November 2004 cover article, Fortune magazine called him 'The Man Who Changed Medicine' for changes in approach to funding and results that he initiated.
With an estimated net worth of around $2 billion as of 2010, he is ranked by Forbes magazine as the 488th richest person in the world. Much of that wealth comes from his success as a bond trader; he only had four losing months in 17 years of trading prior to the bankruptcy of Drexel in 1990. family in Encino, California. He graduated from Birmingham High School where he was the head cheerleader and worked while in school at a diner. His classmates included actresses Sally Field and Cindy Williams. In 1968, he graduated from the University of California, Berkeley with a B.S. with highest honors where he was elected to Phi Beta Kappa and was a member of the Sigma Alpha Mu fraternity. He received his MBA from the Wharton School of the University of Pennsylvania. While at Berkeley, Milken was influenced by credit studies authored by W. Braddock Hickman, a former president of the Federal Reserve Bank of Cleveland, who noted that a portfolio of non-investment grade bonds offered 'risk-adjusted' returns greater than that of an investment grade portfolio.

Career
Through his Wharton professors, Milken landed a summer job at Drexel Harriman Ripley, an old-line investment bank, in 1969. After completing his MBA, he joined Drexel (by then known as Drexel Firestone) as director of low-grade bond research. He was also given some capital and permitted to trade. According to legend, he was so devoted to his work that he wore a miner's headlamp while commuting on the bus so that he could read company prospectuses.

Drexel merged with Burnham and Company in 1973 to form Drexel Burnham. Despite the firm's name, Burnham was the nominal survivor; the Drexel name only came first at the insistence of the more powerful investment banks, whose blessing was necessary for the merged firm to inherit Drexel's position as a 'major' firm. Milken was one of the few prominent holdovers from the Drexel side of the merger. He persuaded his new boss, Tubby Burnham (a fellow Wharton alumnus), to let him start a high-yield bond trading department—an operation that soon earned a remarkable 100% return on investment. By 1976, Milken's income at what was now Drexel Burnham Lambert was estimated at $5 million a year.

One weekend in 1978, Milken moved the high-yield bond operation to Century City in Los Angeles. The transition went so smoothly that many clients were unaware that the department had moved between Friday and Monday. Later, the operation moved to Beverly Hills at 9560 Wilshire Boulevard. On the fourth floor, he set up an X-shaped trading desk—designed to maximize his contact with traders and salesmen—from which he worked very long hours, invariably starting his day before 5 am Pacific (8 am Eastern, prior to the opening of the markets in New York). The department grew and, in 1986-87, moved up to the fifth floor, where there were eventually three of the famous X-shaped trading desks.

High-yield bonds and leveraged buyouts
History of private equity and venture capital
See also|Private equity in the 1980s
By the mid-1980s, Milken's network of high-yield bond buyers (notably Fred Carr's Executive Life Insurance Company and Tom Spiegel's Columbia Savings & Loan) had reached a size which enabled him to raise large amounts of money very quickly. It was said, for example, that Milken raised $1 billion for MCI Communications, then an upstart provider of long-distance telephone services, in the space of one hour on the telephone. Cable TV companies, like John Malone's Tele-Communications Inc., were also favorite clients, as were Ted Turner's maverick Turner Broadcasting, cellphone pioneer Craig McCaw, and casino entrepreneur Steve Wynn. Before long, the CEOs and CFOs of many smaller and mid-sized companies previously limited to the slow and expensive private-placement market were making early-morning pilgrimages to Beverly Hills seeking to issue high-yield and/or convertible bonds through Drexel Burnham. Without question, many leading entrepreneurs of the 1980s owe their success at least partly to Milken's perception of this market opportunity. One of his favorite sayings: 'There is no shortage of capital; there is only a shortage of management talent.'

Milken was largely involved with kick-starting investments in Nevada, which for many years was the fastest-growing state in the U.S. Milken funded the gaming industry, newspapers and homebuilders; among the companies he financed were MGM Mirage, Mandalay Resorts, Harrah's Entertainment and Park Place.

This money-raising ability also facilitated the activities of leveraged buyout (LBO) firms such as Kohlberg Kravis Roberts and of so-called 'greenmailers'. Armed with a 'highly confident letter' from Drexel (in which Drexel promised to get the necessary debt in time to fulfill the buyer's obligations), these firms and greenmailers were able to profit by merely threatening LBOs of large, blue-chip companies in which they had built up equity positions. Milken's task was perhaps made easier by the fact that the top-tier Wall Street investment banks were unwilling to compete with him for fear of jeopardizing their longstanding and lucrative relationships with many of the blue-chip companies who were potentially his targets, although companies such as Salomon Brothers, Morgan Stanley, and First Boston later entered the high-yield market. Drexel financed notable buyouts of companies previously thought invulnerable, including Beatrice Companies and the cosmetics firm Revlon.

Amongst his significant detractors have been Martin Fridson formerly of Merrill Lynch and author Ben Stein. Milken's high-yield 'pioneer' status has proved dubious as studies show 'original issue' high-yield issues were common during and after the Great Depression. Milken himself points out that high-yield bonds go back hundreds of years, having been issued by the Massachusetts Bay Colony in the 17th century and by America's first Treasury Secretary Alexander Hamilton. Others such as Stanford Phelps, an early co-associate and rival at Drexel, have also contested his credit as pioneering the modern high-yield market. This is, however, quibbling, as Drexel was for all intents and purposes unchallenged as essentially the only underwriter and trader of high-yield bonds throughout almost the entire decade of the 1980s.

Despite his influence in the financial world (at least one source called him the most powerful American financier since J.P. Morgan), Milken was an intensely private man who shunned publicity. Citing the power behind the most aggressive firm on Wall Street, Drexel bankers often used 'Michael says ...' to justify their tactics. Milken also established K12 Inc., a publicly traded education management organization (EMO) that provides online schooling, including to charter school students for whom services are paid by tax dollars,

Ivan Boesky and an intensifying investigation
The SEC inquiries never got beyond the investigation phase until 1986, when arbitrageur Ivan Boesky pled guilty to securities fraud as part of a larger insider trading investigation. As part of his plea, Boesky purported to implicate Milken in several illegal transactions, including insider trading, stock manipulation, fraud and stock parking (buying stocks for the benefit of another). This led to an SEC probe of Drexel, as well as a separate criminal probe by Rudy Giuliani, then United States Attorney for the Southern District of New York. Although both investigations were almost entirely focused on Milken's department, Milken refused to talk with Drexel (which launched its own internal investigation) except through his lawyers.

As part of his plea, Milken agreed to pay $200 million in fines. At the same time, he agreed to a settlement with the SEC in which he paid $400 million to investors who had been hurt by his actions. He also accepted a lifetime ban from any involvement in the securities industry. In a related civil lawsuit against Drexel he agreed to pay $500 million to Drexel's investors. In total this means that he paid $1.1 billion for all lawsuits related to his actions while working at Drexel.

Critics of the government charge that the government indicted Milken's brother Lowell in order to put pressure on Milken to settle, a tactic condemned as unethical by some legal scholars. 'I am troubled by - and other scholars are troubled by - the notion of putting relatives on the bargaining table,' said Vivian Berger, a professor at Columbia University Law School, in a 1990 interview with the New York Times. As part of the deal, the case against Lowell was dropped. Federal investigators also questioned some of Milken's relatives—including his aging grandfather—about their investments.

At Milken's sentencing, Judge Kimba Wood told him:

quote|You were willing to commit only crimes that were unlikely to be detected.... When a man of your power in the financial world... repeatedly conspires to violate, and violates, securities and tax business in order to achieve more power and wealth for himself... a significant prison term is required.http://books.google.com/books?id=xNHIpVJgcHgC&pg=PA517&lpg=PA517&dq=%22When+a+man+of+your+power+in+the+financial+world.%22#v=onepage&q=%22When%20a%20man%20of%20your%20power%20in%20the%20financial%20world.%22&f=false}}Source @ Wikipedia