A Wall Street wolf shows remorse

America’s president is rehabilitating the former scrap bond king Michael Milken – because he has turned from a greedy banker to a philanthropist.

Michael Milken moderates a panel discussion

Dhe legendary financier Michael Milken, who played a pivotal role in developing the high yield bond market in the 1980s, has been pardoned by President Donald Trump. Milken held a leading position in the investment bank Drexel Burnham, where he set up a division for trading in so-called junk bonds in the late 1970s. This means bonds from companies with questionable creditworthiness.

Unheard of sum

Milken evidently had a special talent for this business. In the eighties he had the reputation of being able to organize risky financing like no other thanks to his network. Milken thus paved the way for spectacular junk bond financed takeovers. In the 1980s, for example, the investment bank Kravis Kohlberg Roberts (KKR) bought the food giant Nabisco for the then unheard-of sum of 25 billion dollars.

The transaction received a divided response. One side denounced the two-digit million euro payments to participating investment bankers associated with the takeover. She saw pure greed at work. The interpretation fits in with the highly controversial idea of ​​individual financial investors and economists that greed is good for growth and prosperity. The narrative of money-hungry investors found its expression in the bestseller “Barbarians at the Gate”, which was later filmed. The alternative interpretation, however, was that Milken’s high-yield bonds forced sluggish conglomerates to dismantle their water heads and concentrate on their core business. After all, the debt that financed the takeovers ended up with the acquired companies. They had to streamline their processes in order to be able to generate the interest payments.

In the sights of the stock exchange regulator

Milken’s career ended abruptly at the end of the 1980s. According to a former companion at Drexel Burnham, the stock exchange supervisory authority had been targeting Milken since the 1970s. She suspected him of unethical and illegal activities, writes Dan Stone, ex-manager of Drexel Burnham in his book “April Fools”. In 1986 the suspicion was confirmed. A speculator by the name of Ivan Boesky, himself targeted by the stock exchange regulator for suspected fraud, weighed heavily on Milken: insider trading, price manipulation and fraud were among the allegations. Rudy Giuliani, then a prosecutor in New York, initiated proceedings against Drexel Burnham that focused solely on Milken’s activities in the high yield division. Drexel stuck to Milken, their main profit maker, until she found out that he was using a legal vehicle with which he, his children and fund managers personally earned by doing side-effects on the transactions. That violated Drexel’s internal rules, but also laws.

Milken was charged in 1989 and later sentenced to ten years in prison after pleading guilty on six counts. Violation of stock exchange law and tax evasion were among them. Milken paid a $ 200 million fine and $ 400 million out of pocket to investors harmed under Milken’s transactions. The sentence was later reduced to two years. He was also forbidden to ever become a professional investment banker again. A few years later, the stock exchange supervisory authority suspected him of having violated this requirement. The investigations resulted in a comparison for which Milken had to shell out millions again.

In recent years, Milken has become known primarily as a great philanthropist who primarily supports research into prostate and skin cancer through foundations and large donations. President Bill Clinton had already considered pardoning Michael Milken, but finally rejected the idea. One of the supporters of the pardon was Rudy Giuliani, who had once prosecuted him as a prosecutor.

Media entrepreneur Rupert Murdoch, investment banker David Rubinstein and financier Nelson Peltz also supported the pardon. Peltz also owes his rise to Milken’s help. Peltz recently hosted a fundraising for Donald Trump’s re-election, which, according to the Washington Post, raised around ten million dollars from wealthy guests. Trump, in turn, associates Milken, for example, with the fact that both studied business administration at the Wharton Business School in Pennsylvania.