Milken’s Largess Slows Down : Donations: The junk bond king’s charitable trusts have virtually stopped growing since his 1989 federal indictment.


The charitable trusts controlled by former junk-bond impresario Michael Milken, which he and his wife endowed with $250 million in 1987-88 alone, virtually stopped growing after Milken was indicted in early 1989 on federal securities charges that led to his guilty plea and current prison term.

Donations to outside causes by his family’s four main trusts also slowed, state records show.

Milken did form a fifth foundation in 1989, although no financial information about it is yet available. The new entity, called The Milken Institute for Job and Capital Formation, makes grants to universities and others to research trends in economic growth.

Private tax-exempt foundations such as Milken’s must file their annual federal tax returns and other documents with the state Registry of Charitable Trusts, a branch of the attorney general’s office.


The most recent records available for the Milken trusts cover the fiscal year that ended either Oct. 31 or Nov. 30 of 1990, depending on the foundation. Although the trusts’ data are now nearly two years old, they provide evidence of how Milken, 46, stopped adding to his trusts’ assets after his indictment.

Milken, who grew up in the Valley, is serving his sentence at a federal prison in Dublin, Calif., while his wife and children continue to live in Milken’s permanent residence in Encino.

In fiscal 1990, the market value of the combined assets held by the four main Milken trusts totaled $388.5 million, up a mere 2% from fiscal 1988. Also, the foundations’ combined annual disbursements--in gifts, contributions and grants to outside organizations--totaled $23.2 million in fiscal 1990, down 7% from $25 million two years earlier.

The day-to-day manager of Milken’s foundations, Julius Lesner, said he was too busy to discuss their current status. One of Milken’s lawyers, Richard Sandler, who is also a director of the foundations, declined comment.


In any case, the slowdown in the trusts’ growth was not surprising when one considers that Milken, in addition to serving jail time, ultimately paid more than $1 billion in fines, penalties and out-of-court civil settlements. His lawyers have said that Milken’s fortune, once estimated at nearly $2 billion, is now about $500 million.

The decline in gifts also was not unusual given the slowdown in the foundations’ asset growth. Charitable foundations typically resemble annuities--each year they parcel out only a bit of their assets in donations so that their asset base extends for years.

Regulators do require private charitable foundations to make minimum annual payouts equal to 5% of their total assets. And taken together, the $23.2 million disbursed by the four Milken foundations in fiscal 1990 amounted to 6% of their assets.

Some recipients of Milken’s cash also said they’ve detected no major changes in his trusts’ grant-giving plans, even if the trusts are no longer growing so rapidly.

The Milken trusts, like most foundations, make it clear to recipients each year “that one grant is no guarantee of future funding,” said Marshall McNott, president of the Los Angeles Mission Foundation, which has received about $15,000 annually from the Milken trusts in recent years. “We haven’t experienced any feedback different from that.”

Earlier, state records showed that Milken and his wife, Lori, made their huge contributions to the foundations in 1987-88 at a time when Michael Milken was the kingpin of junk bonds, those high-risk, high-yield debt securities made famous during the 1980s by Milken while he worked in the Beverly Hills office of his employer Drexel Burnham Lambert Inc.

The Milkens’ contributions also came as Wall Street’s insider-trading scandal was nearing ever closer to Milken, although a Milken spokesman at the time denied that there was any connection between Milken’s growing largess and the widening scandal.

Milken was indicted in March, 1989, on a variety of federal charges including alleged insider trading. In April, 1990, facing an even broader indictment by a grand jury, Milken agreed to plead guilty to six felonies that were related to securities fraud but not insider trading. Seven months later he was sentenced to 10 years in prison.


(In early August, a federal judge reduced his sentence, citing his cooperation with authorities. U. S. District Judge Kimba Wood said Milken is now eligible for parole after serving 24 months--meaning he probably will leave jail next March. Her original order said Milken had to serve 36 to 40 months before becoming eligible for parole.)

Moreover, Milken in 1990 paid $200 million in criminal penalties and $400 million in a Securities and Exchange Commission settlement. And early this year, he paid an additional $500 million to settle hundreds of civil lawsuits brought against him by investors.

In the meantime, Milken andhis wife made no contributions to the family’s three largest trusts in fiscal 1989 and 1990, records show. Those three foundations are called the Capital Fund Foundation ($173.6 million in assets at the end of fiscal 1990), the Milken Family Foundation ($127.8 million) and the Milken Family Medical Foundation ($61.7 million).

The fourth, the L&S; Milken Foundation ($25.4 million), is named after Milken’s brother, Lowell Milken, 43, and Lowell’s wife Sandra. Its assets climbed $4 million, or 28%, in fiscal 1990. All four of the foundations recently moved their shared headquarters to Santa Monica from Sherman Oaks.

The major recipients of the Milkens’ charity continued to be education, medical research and religious endeavors, notably those revolving around Milken’s Judaism.

In fiscal 1990, the Capital Fund Foundation’s biggest award--$1.5 million--went to the Quality Education Project, a nonprofit program that tries to increase parent involvement in schools. Next came the Jewish Federation Council of Greater Los Angeles ($1.4 million), followed by the Archdiocese of New York ($1 million).

Other recipients included the AIDS Project of Los Angeles, the Rose Bowl Aquatics Center, the Union Rescue Mission and Planned Parenthood.

The Milken Family Medical Foundation, meanwhile, gave $1.3 million to the American Epilepsy Society, followed by a $959,547 donation to the Cancer Research Award Program. The Venice Family Clinic and the Center for the Partially Sighted also were beneficiaries.


Ron Rieder, spokesman for the Jewish Federation Council of Greater Los Angeles, declined comment on the size of the Milken’s donations to his organization, donations that have ranged between $1 million and $1.4 million in recent years.

But he said that despite Milken’s imprisonment, Milken’s family has continued its close involvement in its charities. Lowell Milken and the brothers’ mother, Ferne, “have continued their close relationship with the federation,” Rieder said.

They continue to attend functions at the Bernard Milken Jewish Community Campus in West Hills--built in the late 1980s with the help of a $5-million Milken family donation and named after Michael Milken’s late father--and Ferne Milken “is especially interested in children’s programs and has visited its child-care facility several times,” Rieder said.

The state records also show that the Milken foundations, while investing the bulk of their assets in unspecified government securities, continued to hold a portfolio of junk bonds as of late 1990, although not as many as when Milken was at his zenith.

They also show that, on paper at least, the junk bonds were providing mixed returns for the foundations. (Assuming the trusts still hold the bonds, those returns might have improved somewhat because of a recent rally in the junk-bond market.)

The Capital Fund Foundation, for instance, continued to own junk bonds issued by Safeway Inc. and Hillsborough Holdings Corp., two entities controlled by leveraged-buyout king Kohlberg Kravis Roberts & Co. (Hillsborough is operating under bankruptcy-court protection.) Junk bonds issued by Continental Airlines, another company in bankruptcy, also were in the foundation’s portfolio.

At the end of fiscal 1990, the Capital Fund Foundation listed the combined market value of its junk bonds as $16.9 million. That sum, equal to 10% of its total assets, was well below the $26.1 million listed as the amount the foundation paid for the bonds. At the Milken Family Foundation, however, its junk holdings’ market value at the time exceeded their cost--$15.5 million to $12.4 million, respectively.

Michael Milken’s Charities Former junk-bond wizard Michael Milken has virtually stopped adding to his four main charitable trusts since his 1989 indictment on securities violations. He did start a fifth foundation, the Milken Institute for Job and Capital Formation, in 1989 but its financial information is not yet available. Despite the reduction in Milken’s contributions to these foundations, according to law each of the foundations continues to give out at least 5% of their assets each year.

For fiscal years ended Oct. 31 or Nov. 30 In millions COMBINED MILKEN FOUNDATION ASSETS:

% Change From Prior Year Amount Year 1990 $388.5 +1% 1989 383.1 +1% 1988 380.6 +33% 1987 285.9 --


Capital Fund Foundation

% Change From Prior Year Market Value Year 1990 $173.6 -3% 1989 179.2 +1% 1988 178.1 +4% 1987 170.5 +80%

Milken Family Foundation

% Change From Prior Year Market Value Year 1990 $127.8 + 7% 1989 119.9 + 2% 1988 118.0 + 21% 1987 97.5 --

Milken Family Medical Foundation*

% Change From Prior Year ended Market Value Year 1990 $61.7 -4% 1989 64.1 -7% 1988 69.0 +435% 1987 12.9 --

L & S Milken Foundation

% Change From Prior Year ended Market Value Year 1990 $25.4 +28% 1989 19.9 +28% 1988 15.5 +210% 1987 5.0 --

The Milken Institute for Job and Capital Formation

% Change From Prior Year ended Market Value Year 1990 Not available Not available 1989 Not available Not available

*Formerly named M & L Milken Foundation

Source: State Registry of Charitable Trusts

Gifts, Contributions and Other Grants For fiscal years ended Oct. 31 or Nov. 30 In millions Capital Fund Foundation:

% Change From Prior Year Ended Amount Year 1990 $14.2 +11% 1989 12.8 +51% 1988 8.5 +52% 1987 5.6 --

Milken Family Foundation

% Change From Prior Year Ended Amount Year 1990 $4.0 -52% 1989 8.4 -26% 1988 11.3 +183% 1987 4.0 --

Milken Family Medical Foundation*

% Change From Prior Year Ended Amount Year 1990 $4.6 +35% 1989 3.4 -24% 1988 4.5 -15% 1987 5.3 --

L & S Milken Foundation

% Change From Prior Year Ended Amount Year 1990 $0.4 -33% 1989 0.6 -14% 1988 0.7 -42% 1987 1.2 --

*Formerly named M & L Milken Foundation

Source: State Registry of Charitable Trusts

Biggest Gifts in 1990 Capital Fund Foundation

Quality Education Project: $1.5 million

Jewish Federation Council of Greater Los Angeles: $1.4 million

Archdiocese of New York: $1 million

P.E.F. Israel Endowment: $747,000

Anti-Defamation League: $698,500

Milken Family Foundation

Educator Award Program: $834,364

Center for Jewish Community Studies: $500,000

Education Project: $390,000

Archdiocese of Los Angeles: $291,000

Los Angeles Urban League: $230,000

Milken Family Medical Foundation*

American Epilepsy Society: $1.3 million

Cancer Research Award Program: $1 million

Chabad: $200,000

Starlight Foundation: $163,300

Jewish Homes for the Aging of Greater Los Angeles: $125,000

*Formerly named M & L Milken Foundation

Source: State Registry of Charitable Trusts