Michael Milken

Michael Robert Milken (born July 4, 1946) is an American financier.

He is known for his role in the development of the market for high-yield bonds ("junk bonds"), and his conviction and sentence following a guilty plea on Felony charges for violating U.S. securities laws.

In 1968, he graduated from the University of California, Berkeley with a B.S. with highest honors.

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.

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 control of some capital and permitted to trade.

Over the next 17 years, he had only four down months.

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 came first only 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, and he became the merged firm's head of convertibles.

He persuaded his new boss, fellow Wharton alumnus Tubby Burnham, to let him start a high-yield bond trading department—an operation that soon earned a 100 percent return on investment.

By 1976, Milken's income at the firm, which had become Drexel Burnham Lambert, was estimated at $5 million a year.

In 1978, Milken moved the high-yield bond operation to Century City in Los Angeles.

Milken's compensation while head of the high-yield bond department at Drexel Burnham Lambert in the late 1980s exceeded $1 billion over a four-year period, a record for U.S. income at that time.

With a net worth of US$6 billion as of 2022, he is among the richest people in the world.

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 that enabled him to raise large amounts of money quickly.

This money-raising ability also facilitated the activities of leveraged buyout (LBO) firms such as Kohlberg Kravis Roberts and of the so-called "greenmailers".

Most of them were armed with a "highly confident letter" from Drexel, a tool Drexel's corporate finance wing crafted that promised to raise the necessary debt in time to fulfill the buyer's obligations.

It carried no legal status but, by this time, Milken had a reputation for being able to make markets for any bonds that he underwrote.

For this reason, "highly confident letters" were considered to reliably demonstrate capacity to pay.

Despite his influence in the financial world during the 1980s, (at least one source called him the most powerful American financier since J. P. Morgan), Milken is an intensely private man who shuns publicity; he reportedly owned almost all photographs taken of him.

Milken was indicted for racketeering and securities fraud in 1989 in an insider trading investigation.

In a plea bargain, he pleaded guilty to securities and reporting violations but not to racketeering or insider trading.

Milken was sentenced to ten years in prison, fined $600 million (although his personal website claims $200 million) and permanently barred from the securities industry by the U.S. Securities and Exchange Commission.

His sentence was later reduced to two years for cooperating with testimony against his former colleagues and for good behavior.

Milken and his brother Lowell founded Knowledge Universe in 1996, as well as Knowledge Learning Corporation (KLC), the parent company of KinderCare Learning Centers, the largest for-profit child care provider in the country.

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."

Among 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 "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.

Milken was pardoned by President Donald Trump on February 18, 2020.

Since his release from prison, he has become known for his charitable donations.

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.

Milken was born into a middle-class Jewish 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 future Disney president Michael Ovitz and actresses Sally Field and Cindy Williams.