Advertisement

THE MILKEN INDICTMENT : Milken’s Strategy for Making Lots of Fast Money on Wall Street

Times Staff Writer

So you want to be a billionaire? Well, toss out that stack of unread books on how to get rich. No, this isn’t a pyramid scheme.

It’s straight from the public record: The government’s 110-page indictment of Michael Milken offers all the words of wisdom any aspiring financial magnate ought to need.

After all, Milken’s pay for running Drexel Burnham Lambert’s “junk bond” department was a cool $550 million in 1987 alone, according to federal investigators.

Even to investment bankers, that’s real money. And Milken didn’t get it by accident; he employed certain time-honored strategies. There’s no reason they can’t work for any other enterprising financier:

Advertisement

- Make yourself indispensable. Milken’s junk bond operation, which prepared high-risk, high-yield issues, accounted for about half of the profits of the entire New York-based firm.

In 1983 and 1984, Milken’s department represented 75% to 80% of Drexel’s profits, according to investigators. And that enabled Milken to exploit the following principle.

- Get a piece of the action. While the Beverly Hills operation became a powerful money machine for the parent company, Milken--whose financial genius and extraordinary drive sparked its success--took home 28% to 44% of the office’s gross revenue.

Between 1983 and 1987, his pay and bonus levels jumped into the stratosphere: from $45.7 million to $123.8 million to $135.3 million to $294.8 million--and ultimately above $500 million.

Advertisement

“It’s an astounding amount of money,” said Fredric M. Roberts, an investment banker and chairman of the Southern California district of the National Assn. of Securities Dealers. “On the other hand, he was paid for performance--and he performed.”

- Don’t underprice your services. Milken seems to have watched this one carefully. When Drexel arranged $1.4 billion in financing for Turner Broadcasting and advised it in its purchase of MGM/UA in early 1986, for example, Milken’s shop got $66.8 million in fees.

For helping Kohlberg Kravis Roberts & Co. take over Storer Communications in 1985--services that included arranging and selling $1.47 billion in securities--Drexel received $49.5 million.

It isn’t clear, however, whether such fees are extraordinary. Investment bankers typically charge a percentage of a deal’s value for their services, and large transactions often result in payments of many millions of dollars.

“No one put a gun to Ted Turner’s head and said, ‘Pay these guys 5% for the service’ if they could get it for 2% somewhere else,” Roberts said.

- Believe in yourself. Milken apparently did: As of October, 1988, he owned an estimated $100 million worth of Drexel stock, which he apparently considered a good bet for the future. In fact, he was the firm’s largest shareholder, owning about 5.62% of its shares in late 1986, investigators found.

- Keep it in the family. Milken employed his younger brother, Lowell Milken, as a senior vice president. Lowell Milken, also indicted Wednesday, received $10.18 million from the firm in 1984, $16.67 million in 1985, $27.21 million in 1986 and $48.06 million in 1987. He also owned about $13 million worth of Drexel stock as of last October.

- Keep more of it in the family. In the early 1980s, Milken and partners bought the five-story Gump’s building in Beverly Hills for $25.9 million. Between 1984 and 1988, Milken shared in $11.2 million in rental receipts--from Drexel, which set up shop in the building.

Advertisement

Finally, don’t lose sight of basic American virtues. Those who know Milken agree that he was a tireless worker, relying on extra effort as a way to gain an edge in the competitive world of high finance.

In a deposition, he once said his Beverly Hills office averaged a quarter of a million transactions per month. In an earlier, happier day, Milken reportedly told a boss: “I don’t know if I’m smarter than anyone else, but I can work 25% harder.”


Advertisement