Few men inspire such a range of descriptions as Michael Milken. And, indeed, few men have distinguished themselves in the wide range of activities as Milken has. “Junk bond” genius. Noted philanthropist.
And now, key defendant in one of the most celebrated insider trading cases ever.
To his detractors, Milken’s junk bond operation at Drexel Burnham Lambert Inc. has been nothing short of a deadly threat to the entire American financial system. By providing funds for corporate raiders and would-be takeover artists, Milken greased the wheels for many of the most protracted and ugly board room and shareholder fights in the history of American finance.
And he earned the enmity of corporate titans who eluded the attacks.
“Junk bonds were destroying the central financial system of the country,” said Fred L. Hartley, chairman of Unocal, the Los Angeles petroleum company that fought off a junk bond-financed takeover attempt by T. Boone Pickens Jr. in 1985. “And he (Milken) initiated the whole concept.”
But to his many supporters across the country, Milken is known as a generous donor to a wide variety of charities, particularly those oriented toward children and the education of underprivileged groups. Through three family foundations, Milken and his brother, Lowell, gave more than $17 million to 200 charities over the last six years.
And he is considered “like family” by an intensely devoted group of entrepreneurs who used Drexel’s junk bonds to finance their expansion.
“Drexel and Milken were the only ones who would talk to us, and we tried to get financing across the entire country,” recalled Brian Greespun, president of the Las Vegas Sun, whose family-owned company turned to Milken in 1986 when it needed money to acquire full ownership of the local cable television station in Nevada.
“We are an example of a modestly successful family which has been able to parlay its assets into a major business operation because of what Milken was able to do for us when no one else would even touch us,” Greenspun added. “The best move we ever made was working with them.”
The range of opinion underscores the central dichotomy of Milken’s junk bond operation: The high-interest bonds were used as much by corporate raiders interested in acquiring huge businesses to break them apart as by small businessmen interested in building their companies.
But, in both cases, the junk bond issuers turned to Milken and his Beverly Hills-based operation because they had been spurned by the traditional sources of financing on Wall Street.
Analysts say Milken and his innovative bonds might have escaped notice if they hadn’t been used for some of the most celebrated corporate takeovers of the 1980s.
“Part of his problem was that he was too successful,” observed Richard Riordan, a prominent Los Angeles attorney and venture capitalist who has worked with Milken for several local charities. “In fact, he became the most powerful person on Wall Street since J. P. Morgan.”
Riordan said Milken’s success might have drawn heightened attention to stock market activities, which are the subject of the indictments, that in the past might have only drawn “a slap on the wrist” from prosecutors.
“It’s disgraceful and a sad day in American business history the way he’s being treated,” said Charles Sarkis, president of the Westwood Group, a Boston leisure company that used junk bonds in 1987 to expand operations. “He has given entrepreneurs an opportunity to participate in the great American game of business.”
Kirk O. Hanson, a senior lecturer on business ethics at Stanford Graduate School of Business, however, said that the billion-dollar penalties sought by the government were not excessive given the charges Milken faced. “I don’t think it’s inappropriate to seek redress in the larger amount that is sought here,” Hanson said. “The public needs to know that rich and poor alike, powerful and powerless, are subject to the same prosecution. The penalties sought have to be appropriate to the damage done.”
Hartley argues that Milken’s strategy will ultimately be the undoing of American business because it has allowed companies to swap their equity--the mainstay of enterprise--for debt. “But he was able to get jackasses in the public to accept it,” Hartley said with a shrug. “He sold those bonds to savings and loans, churches and the like.”
Hartley strongly resists the notion that Milken is being persecuted for leading the brigade on an innovative form of financing that threatened the corporate establishment. “He’s not being indicted for raising money for buyouts,” Hartley thundered. “He’s being charged with doing something illegal. He got caught with his fingers in the cookie jar. It’s marvelous.”
However, Rabbi Marvin Hier, dean at the Simon Wiesenthal Center in Los Angeles, said: “It’s always a sad thing to know that anybody has been indicted . . . it is something people are not proud of.” Hier praised the Milkens and their foundation for their generous support of Jewish and other charities locally and nationwide. He added that he did not expect the development to have a negative effect on donations by the foundation.
Milken’s second cousin, Stanley R. Zax, chairman of Zenith National Insurance in Woodland Hills, learned of the indictment on the Dow Jones ticker tape. “Michael Milken is an outstanding human being who has made outstanding contributions to this country and city. He is entitled to the presumption of innocence.”