Michael Milken and the High Price of Being on Top

Michael Milken was an American businessman, financier and philanthropist. He became popular in the business world for developing the market for high-yield bonds or “junk bonds.” But his indictment and subsequent conviction for violating US laws in securities overshadowed his business acumen and charitable causes.

Milken was born on July 4, 1946 in Encino, California. Milken earned his bachelor’s degree at the University of California, Berkeley and his MBA at the Wharton School of the University of Pennsylvania. During his years at Berkeley, Milken’s business philosophies was influenced, to a great extent, by the studies of former Federal Reserve of Cleveland president W. Braddock Hickman. Milken believed that non-investment grade bonds have greater “risk adjusted” returns than investment grade bonds.

After earning his MBA, Milken was hired by Drexel as research director of low-grade bonds. Drexel provided him with capital so he can trade when needed. According to anecdotes, Milken was very devoted to his job that he would wear a miner’s headlamp so he can read the company’s prospectus while he rode the bus.

In 1989, Milken was involved in racketeering and securities fraud after the Securities and Exchange Commission investigated an insider trading report. During his plea bargaining, Milken pled guilty for violating securities laws but pled not guilty for racketeering and insider trading. Milken was convicted of his crime and was sentenced to ten years in the federal penitentiary, a fine of $600 million, and a lifetime ban from the securities industry. For his good behavior and his testimony against his former peers, Milken’s sentenced was reduced to two years in prison.

Milken’s critics would call him as the “epitome of Wall Street greed” and would nickname him  as the “Junk Bond King.” However, his supporters like author George Gilder praise Milken in his book entitled Telecosm for impelling economic growth in the US. Gilder noted of the increased capital productivity as Milken spearheaded the trap to old-line businesses by putting them back into a dynamic market.

After serving his sentence, Milken financed a medical research and co-founded the Milken family Foundation. As a prostate cancer survivor himself, Milken poured significant amount of resources to pursue research studies on the disease.