28 Apr A Look at the Case of Michael Milken

By Michael McAdams, President, Pasadena Private Lending

I recently saw a Harvard Business School case study reviewing the Drexel Burnam Lambert push into leveraged or acquisition finance as spearheaded by the so-called Junk Bond King, Michael Milken. The case reviews the genesis of high yield/junk bond financing and unfriendly takeovers back in the 1980’s. The point of the case was to get business school students to think through whether or not the case against Milken was properly adjudicated from a business ethics standpoint.

I read every word of the case with great interest, as I had heard about it for several years. And to me, everything is correct as I lived and remember it in the 1980s to 2010s in the leveraged finance industry.

Most will say that Milken was absolutely guilty of the crime of which he was convicted. Although, candidly, only 12 people on his jury were privy to all the facts to have an educated opinion. However, it’s no secret that many others on the Street were likely guilty of “parking” securities and probably numerous other insider trading violations and received slaps on the wrists.

I believe he was not just found guilty but made a spectacle for two reasons. First, he was high-profile, and his conviction would benefit Guiliani’s career. Second, the rest of the Street wanted him to go away for being a “whippersnapper” who took their M&A and “Lev Fin” business out from under their noses. Others would have more likely been regulatorily reprimanded and fined a “usual” token amount.

But as they say, “If you want a friend on Wall Street, buy a dog.”

No one should cry for Milken. He did his time, and came out working as hard as ever. I attended his “maiden speech” at UCLA business school as an adjunct lecturer days after his release. He was never a particularly skilled public speaker despite his insights, but what listeners got from it was he that was not stopping his focus on understanding market inefficiencies and making money for his friends, consulting clients (he could no longer be directly involved in securities markets) and himself.

Needless to say, I understand he is just fine financially. He probably still has residence compounds for his extended family. His ego, an expansive one fueled by an incredible intellect and 18-hour-a-day work ethic, has been leveled. But even net of fines and many hundreds of millions of contributions to worthy causes (yes, possibly to repurchase public respect), he is a very, very wealthy man who still can influence markets and investor behavior with the mention of his name in a company.

Not to be too dark, but rather looking forward, when he like all of us someday passes, there will not be a synagogue in LA big enough to hold those wanting to pay respects. And that will not be just because of the money he helped them make but for the careers he helped them start and for the drive he instilled in them early in their business lives.

And even Rudy Guiliani may show up to thank him for help with prostate cancer advice and, for all we know, a bailout from his current financial issues.