Milken, Michael R.

views updated

MILKEN, MICHAEL R.

MILKEN, MICHAEL R. (1946– ), U.S. investor, philanthropist. Nicknamed "the junk bond king," Milken, by using a little-noticed financial tool, transformed corporate takeovers and financing in the 1970s and 1980s, amassing great personal wealth – $200 million to $550 million a year – through what some considered questionable financial dealings. In 1989 a federal grand jury indicted Milken for violations of federal securities and racketeering laws. He pleaded guilty to securities fraud and related charges in 1990, and the government dropped the more serious charges of insider trading and racketeering. Milken was fined and sentenced to 10 years in prison but in 1991 his sentence was reduced to two years plus three years probation. Barred from the securities business for life, Milken worked as a strategic business consultant after his release from prison. The Securities and Exchange Commission charged that this work was a violation of his probation, and in 1998 Milken settled with the sec and paid the government $42 million in fees that he had earned plus interest.

Michael Robert Milken grew up in Encino, Calif. His paternal grandparents were Jewish immigrants from Poland. He attended the University of California at Berkeley during the height of protest movements in the mid-1960s and graduated as a business major with highest honors. He began his financial career at the university, when he invested money for his fraternity brothers in return for 50 percent of the profits. With no returns to his clients on losses, Milken had virtual assurance of profitability. At that time he developed a theory about low-grade "junk" bonds. Milken believed that under a revised rating system, one that also factored the potentials for return on investment, cash flow, business plans, personnel and corporate vision, junk bonds might pose a worthwhile risk. In 1970, after earning a master's degree from the Wharton School at the University of Pennsylvania, Milken went to work for the Drexel Corporation as assistant to the chairman and later became head of bond research. When Drexel merged with Burnham & Co. in 1973, Milken headed the noninvestment-grade bond-trading department, an operation that earned 100 percent return on investment. In 1977 Milken returned to California and moved his High-Yield Bond Department to Los Angeles. Milken's younger brother Lowell joined him. In the early 1980s Drexel-Burnham began using the "highly confident" letter, a correspondence designed to convince commercial banks to finance corporate takeovers. The letters stated that Drexel was "highly confident" the funds could be raised to finance the deal. In the company's first attempt at this scheme, Milken raised $1.5 billion in 48 hours. In 1982, Drexel-Burnham took on a new client, the financier Ivan *Boesky. Milken's dealings with him violated the securities law. In June 1989 Milken resigned from Drexel to form his own company, International Capital Access Group. The new venture was unsuccessful largely because Milken was fighting the sec charges in a 98-count indictment. Eventually, he issued an apology and admitted that he cheated clients and plotted with Boesky to accomplish a corporate raid.

Milken completed his prison term in 1993. He co-founded a company called Education Entertainment Network, which produces business videos. In 1996 he and Larry *Ellison founded Knowledge Universe, a company dealing in a diverse variety of goods and services, including day care, executive education, corporate training, and toys. The sec came after him again. He admitted no wrongdoing but paid a fine of $47 million in response to accusations that he served as a broker.

Milken used his personal fortune and high-level contacts to become an influential voice in economics, education, and medical research. In 1982 he co-founded the Milken Family Foundation to support medical education and research. In 1991 he founded the Milken Institute, a kind of think tank that sponsors prestigious international conferences. In 1993, after he was diagnosed with prostate cancer, he founded the Prostate Cancer Foundation, the world's largest philanthropic source of funds for prostate cancer research. The Milken Family Foundation, through the Milken National Educator Awards, founded in 1985, awarded $52 million to honor more than 2,000 teachers and principals, with each educator receiving an unrestricted $25,000 prize.

Milken's philanthropy – some critics questioned his motives – was widespread. In 1995 he donated $5 million to a large Jewish secondary school in Los Angeles. In gratitude the school was to be renamed Milken Community High School of Stephen Wise Temple until parents and students objected. However, a number of Milken grants to Jewish causes endure. The Skirball Cultural Center, one of the most prominent cultural venues in the United States, has a Milken Gallery, for which the Milken Family Foundation was the lead benefactor. It contains exhibits that explore the connections between the 4,000 years of Jewish heritage and the vitality of American democratic ideals. The Milken Archive of American Jewish Music is an international undertaking to record, preserve, and distribute a vast cross-section of American Jewish music covering 350 years. The archive comprises 50 cd's and 600 works on the Naxos American Classical label, the largest collection of American Jewish music ever assembled. The archive has also videotaped more than 100 oral histories of composers, conductors and performers and commissioned a comprehensive history of American Jewish music. The Milken Family Foundation is also a major supporter of American Friends of the Hebrew University, and the foundation for many years has supported the College of Judea and Samaria, the largest public college in Israel. It has a Milken Family Campus, embodying its teaching and research laboratories as well as its library, main administration building and computer center.

[Stewart Kampel (2nd ed.)]