Michael Milken

Definition

Michael Milken was a prominent American financier and philanthropist who was convicted of securities fraud and other crimes in the 1980s. He was a central figure in the junk bond market and played a significant role in the savings and loan crisis, which led to his prosecution and imprisonment.

5 Must Know Facts For Your Next Test

1. Milken was the head of the high-yield bond department at the investment bank Drexel Burnham Lambert, where he pioneered the use of junk bonds to finance corporate takeovers and mergers.
2. Milken's use of junk bonds was a major contributing factor to the savings and loan crisis, as many S&Ls invested heavily in these high-risk securities.
3. Milken was indicted on 98 counts of racketeering and securities fraud, and he eventually pleaded guilty to six felonies and was sentenced to 10 years in prison.
4. After his release from prison, Milken has focused on philanthropic efforts, particularly in the fields of education and medical research.
5. Milken's case was a landmark in the history of corporate crime and the regulation of financial markets, leading to increased scrutiny and oversight of the securities industry.

Review Questions

• Describe the role of Michael Milken in the development and use of junk bonds in the 1980s.
  • Michael Milken was a central figure in the rise of the junk bond market in the 1980s. As the head of the high-yield bond department at Drexel Burnham Lambert, Milken pioneered the use of these high-risk, high-yield corporate bonds to finance corporate takeovers and mergers. Milken's innovative use of junk bonds allowed companies to access capital that they would not have been able to obtain through traditional financing methods, fueling a wave of mergers and acquisitions that transformed the corporate landscape in the 1980s.
• Explain how Milken's activities contributed to the savings and loan crisis of the 1980s and early 1990s.
  • Milken's promotion and widespread use of junk bonds played a significant role in the savings and loan (S&L) crisis of the 1980s and early 1990s. Many S&Ls, which were supposed to focus on mortgage lending, instead invested heavily in the high-yield, high-risk junk bonds that Milken and his firm were selling. When the junk bond market collapsed, it led to the failure of hundreds of S&Ls, costing taxpayers billions of dollars in bailouts and contributing to the broader financial crisis that gripped the United States during this period.
• Analyze the legal and regulatory implications of the charges and convictions against Michael Milken, and how they impacted the securities industry.
  • The prosecution and conviction of Michael Milken on charges of securities fraud and racketeering was a landmark case in the history of corporate crime and the regulation of financial markets. Milken's indictment on 98 counts and his eventual plea bargain to six felonies led to a 10-year prison sentence, sending a strong message about the consequences of financial misconduct. This case highlighted the need for increased scrutiny and oversight of the securities industry, leading to the implementation of new regulations and enforcement measures aimed at preventing similar abuses in the future. The Milken case was a significant turning point in the evolution of corporate governance and the regulation of the financial sector, with far-reaching implications for the securities industry and the broader economy.

Related terms

Junk Bonds: High-yield, high-risk corporate bonds that were used extensively by Milken and his firm to finance corporate takeovers and mergers in the 1980s.

Savings and Loan Crisis: A financial crisis in the United States in the 1980s and early 1990s, characterized by the failure of hundreds of savings and loan associations (S&Ls).

Securities Fraud:

The act of deceiving investors or manipulating financial markets, which was a key component of the charges against Milken.