Milken Redux : Has Cancer, Charity Work Reformed an Ex-Junk Bond King?

It’s just past 2:30 on a Thursday afternoon and Michael Milken is on a roll. The man who once made financial markets quiver is facing an audience as tough as any on Wall Street--22 students at Mount Vernon Middle School near downtown Los Angeles--and he’s in command.

Milken is teaching the students how to do huge multiplication problems instantly in their heads. “What’s 87 times 83?” he bellows to the adolescents who compete against each other in the exercise. “You guys are streaking in the lead on Team Five,” he shouts.

Milken keeps up the high-paced math chatter for 90 minutes, his energy never waning. An adult pokes her head in the class, curious. “Are we making too much noise for you today?” he asks cheerfully.

Meet Mike Milken, Chapter 2. Dressed in a Mike’s Math Club T-shirt, Milken is here as part of his court-ordered community service required since his release from a federal prison in Dublin, Calif., three years ago.

It’s a long way from the days when Milken, now 49, ruled Wall Street and came to personify the ruthlessness and greed of the 1980s. At the now-defunct investment firm Drexel Burnham Lambert, he started work well before dawn and reigned over a frenzied operation so stressful that one bond trader chewed through his phone cord.

Milken created the modern market for high-risk, high-yield securities known as “junk bonds” and he was as dominant in that field as Bill Gates is now in personal computers.

In 1987 alone, Milken earned an astonishing $550 million. And while his sprawling junk-bond empire was raising billions in capital, Milken was involved in what author James B. Stewart, in his book “Den of Thieves,” calls “the greatest criminal conspiracy the financial world has ever known.”

In 1989, Milken was indicted on 98 counts of racketeering and securities fraud. He avoided a trial by pleading guilty in April 1990 to six felonies, including illegally concealing stock positions, helping clients evade income taxes and a conspiracy involving secret record-keeping with stock speculator Ivan Boesky.

Milken ended up paying a $200-million fine, plus $400 million to the government for restitution, and he paid another $500 million to settle civil lawsuits. He was sentenced to 10 years in prison, but served just two after agreeing to testify in other securities trials.

Today, Milken lives relatively modestly in the same Encino house he bought in 1978 with his wife Lori, whom he met while both were students at Birmingham High School in the San Fernando Valley. Just after his release from prison, he was diagnosed with prostate cancer, but the cancer is now in remission.

Milken has thrown himself into his community service and charity work with the same zeal he once directed at junk bonds. Yet he remains recalcitrant when it comes to his criminal record, portraying himself as a misunderstood visionary who will one day be vindicated in the court of public opinion.

During a recent interview, Milken lapsed into a rambling defense of his past--”my problems from the ‘80s”--arguing that his junk bonds helped create entire industries from cable TV to cellular phones.

“I kind of got off easy,” he said. “Most revolutionaries were killed. . . . It took 200 years for people to decide Jesus Christ was a positive.”

One former associate, who asked not to be identified, sees little change in Milken’s basic makeup. He described him as a mix of brilliance and weakness--and someone still driven by power, money and ego.

The one change, he added, is Milken’s powerful desire to cleanse his blackened reputation. “Basically, he’s trying to rewrite history. . . . That’s the current campaign: to rebuild his image,” he said. “He wants people to think he never did anything wrong. He wants people to view him like J.P. Morgan, a business pioneer.”

But so far, his public relations efforts have not accomplished that much. Author Daniel Fischel, who has written a favorable book about the former junk-bond king, said Milken “has paid millions to PR firms in various attempts to improve his image, and they all seemed to have been a colossal failure.”

Fischel says Milken is “very concerned about his place in history. . . . What’s helped him most isn’t anything he has done but the passage of time.”

Milken has been more successful in the familiar world of finance, where he still works part time and receives a ton of money from investment income and consulting fees.

He now works with a small circle of old colleagues, including his brother, Lowell, and Richard Sandler, his longtime lawyer and childhood friend. He also hired two former Democratic operatives as publicists: Michael Reese, former deputy campaign manager for Kathleen Brown, and Kam Kuwata, Dianne Feinstein’s former campaign manager.

Milken’s current clients include a select group of billionaires and former junk-bond associates, including Ted Turner, Rupert Murdoch and Revlon Inc. chief Ronald Perelman. Milken is reportedly set to receive a $50-million consulting fee if Turner Broadcasting System’s $7.5-billion acquisition by Time Warner is completed. He also reportedly earned a $10-million fee for introducing MCI Communications Chairman Bert Roberts Jr. to Murdoch, creating the impetus for MCI’s recent $2-billion investment in Murdoch’s News Corp.

These consulting deals have raised questions about whether Milken has violated the conditions of his plea bargain, which bars him from the securities industry for life.

“I’m not out there with a shingle asking people to stop by and sign up here,” Milken said, contending his advice has helped corporations add billions of dollars in value. “My time is valuable. Barbra Streisand charges a lot when she sings.”

But the Securities and Exchange Commission has launched a formal probe into Milken’s business activities, according to published reports. And although the SEC won’t comment on any possible investigation, the controversy apparently centers on the term “investment advisor.”

According to James Coffman, the SEC’s assistant director for the division of enforcement, Milken’s agreement “does not prevent him from making a living. It does prevent him from being a broker, a dealer or an investment advisor.”

Sandler says Milken obviously “couldn’t buy and sell securities in accounts for others. He won’t be running a mutual fund. He won’t be running a brokerage operation.”

Sandler contends Milken is free to lend his ideas to “where a company might want to position itself” in the future as a consultant, and that does not make him an investment advisor.

But most of Milken’s time these days is given to his various causes, and instead of moving financial markets with a single phone call as he used to do, he now plans math lessons or organizes fund-raising events for his cancer foundation, the Assn. for the Cure of Cancer of the Prostate.

Once publicity shy, Milken seems to be popping up all over to talk about prostate cancer research. With permission from his probation officer to leave Southern California, he has traversed the country, appearing on NBC’s “Today Show” and CNN’s “Larry King Live.”

“I wish I could spend more time at the beach,” Milken said over a low-fat, vegetarian lunch, part of the 1,500-calories-a-day diet he adopted three years ago after learning of his cancer. “I would like to rest.”

But, as his cousin Stanley Zax says, Milken “doesn’t know what free time means.” He started one week recently by flying all night to Washington to speak for the American Epilepsy Society, returning to Los Angeles for a next-day rally at Cal State Northridge. That night he went to a cancer fund-raising dinner.

On Thursday morning, Milken listened to a presentation by a nutrition doctor who wanted research money from Milken’s cancer foundation. Then he rushed off to teach the Mount Vernon math class.

Certainly, Milken’s own battle with cancer has galvanized him like little else. The doctor who told Milken that he had prostate cancer was urologist Stuart Holden, who recalled it was “very tough” to tell “a guy trying to restart his life [after prison] that he was facing an even more serious fight.”

At the time, Milken’s prospects were grim. The cancer had spread beyond his prostate, so it was too late for surgery. He was put on radiation and hormone treatments. About 30% of patients in Milken’s condition die within two years, Holden said, but Milken responded well and his cancer is gone--for now. His type of prostate cancer, though, has a high degree of recurrence in a few years, Holden said.

So there is a feverish edge to Milken’s cancer effort as he mobilizes scientists, pharmaceutical companies and business leaders to join his campaigns. His foundation has committed $25 million to prostate cancer research over five years, and Milken signed on Holden to be the organization’s medical director.

Milken is also looking ahead to March 1, when his probation ends and he can spend more time on his other pet cause--education.

He gripes that, despite raising money for News Corp. and Turner Broadcasting, he has been unable to convince them that educational programming can be a hit with advertisers and viewers.

So Milken has invested in one educational software company, 7th Level Inc., which is considering putting out CD-ROM games based on Milken’s math lessons. And his own firm, EEN Communications, may soon create educational computer games and TV programs.

“I’m going to try to create a title that will sell millions,” he said.

Milken, or trusts for his children, have also recently invested in an eclectic group of companies ranging from a radio programmer to a commercial real estate firm. But most of his investments remain hidden from public view through a Byzantine web of partnerships and trusts. His wealth, along with family trusts, is thought to be at least $500 million--even after Milken paid government fines and gave away more than $400 million to charity.

But some of Milken’s financial secrets may soon be disclosed because of a lawsuit filed in September by his longtime accountant Richard Bergman.

In the late 1980s, Milken put up money for Bergman to manage and it ended up in a series of partnerships that invested in everything from real estate to foreign corporate bonds.

These “highly profitable” investments, Bergman said in his suit, grew to $200 million when the relationship soured. Bergman contends he was squeezed out to prevent him from getting his share of profit. In a counterclaim, Milken’s attorney alleged Bergman stole $20 million.

The case may come to trial within a year, and if it does Milken will have to talk about his personal finances. “I’ve had cancer,” Milken said. “When you talk about something being unpleasant, this [suit] is like a scratch on your fingernail.”

Bergman won’t talk about his lawsuit. But he describes Milken as “a tremendous salesman. He did it with Drexel in the ‘80s and he’s doing it now with cancer research.”

Whether Milken can ultimately shed his image as a late 20th century robber baron is unclear, but the publication last year of Fischel’s book “Payback” was a step in that direction. The book is a revisionist account of Milken’s legal battle against the federal government.

Fischel, a University of Chicago law professor who worked on Milken’s legal team during the junk-bond case, says Milken was a scapegoat, that the charges against him were minor, and that he was a target of envious blue-chip Wall Street firms that helped fuel an out-of-control government investigation.

In 1997, Milken also plans to write his autobiography. Bob Ezrin, a friend of Milken and the president of 7th Level, said, “My sense is that it drives him nuts that he hasn’t been able to tell his side of the story.”

Milken’s best ally now may simply be the passage of time. At the recent rally at Cal State Northridge, where Milken was trying to recruit volunteers for DARE-Plus, an after-school education program for teens, many students were only vaguely aware of the former junk-bond king’s infamous past.

Milken’s salesmanship was subtle, but evident, as he stood close to students, smiled and quietly pumped them with questions. In minutes he learned their names, what they studied, the high schools they went to, how far they drove to school--while he kept talking up DARE-Plus and how they could earn college credits for teaching. That day Milken and his team signed up about 40 CSUN students.

One student, Amy Hanreddy, sat in the sun and watched Milken at work. She was in junior high when Milken was at his zenith and now remembers him only faintly. “I remember reading something about him,” she said. “He was some big money guy who went to prison.”