Editing Michael Milken (section)

==Scandal==

Dan Stone, a former Drexel executive, wrote in his book ''April Fools'' that Milken was under nearly constant scrutiny from the [[Securities and Exchange Commission]] from 1979 onward due to unethical and sometimes illegal behavior in the high-yield department.<ref name="April Fools"/>

Milken's role in such behavior has been much debated. Stone claims that Milken viewed the securities laws, rules, and regulations with a degree of contempt, feeling they hindered the free flow of trade. However, Stone said that while Milken condoned questionable and illegal acts by his colleagues, Milken himself personally followed the rules.<ref name="April Fools"/> Milken often contacted [[Fred Joseph]], Drexel's president and CEO, with ethical questions; Joseph was known for his strict view of the securities laws.<ref name="HC"/>

On the other hand, several of the sources [[James B. Stewart]] used for ''[[Den of Thieves (Stewart book)|Den of Thieves]]'' told him that Milken often tried to get as much as five times the maximum markup on trades that was permitted at the time.<ref name="denofthieves"/>

[[Harvey A. Silverglate]], a defense attorney who represented Milken during the appellate process, disputes that view in his book ''Three Felonies a Day'': "Milken's biggest problem was that some of his most ingenious but entirely lawful maneuvers were viewed, by those who initially did not understand them, as felonious, precisely because they were novel – and often extremely profitable."<ref name="ThreeFelonies">{{Cite web |url=http://www.mikemilken.com/ThreeFelonies.pdf |title=''Three Felonies A Day: How the Feds Target the Innocent'' (Chapter Four: "Following (or Harassing?) the Money"), Encounter Books, 2009. |access-date=February 5, 2010 |archive-date=September 27, 2010 |archive-url=https://web.archive.org/web/20100927061803/http://mikemilken.com/ThreeFelonies.pdf |url-status=live }}</ref><!--ISSN/ISBN needed-->

===Ivan Boesky and an intensifying investigation===

The SEC inquiries never advanced beyond the investigation phase until 1986, when arbitrageur [[Ivan Boesky]] pleaded guilty to securities fraud as part of a larger insider trading investigation. As part of his plea, Boesky implicated Milken in several illegal transactions, including insider trading, [[stock manipulation]], fraud, and stock parking (buying stocks for the benefit of another). This led to an SEC probe of Drexel, as well as a separate criminal probe by [[Rudy Giuliani]], then [[United States Attorney for the Southern District of New York]]. Although both investigations were almost entirely focused on Milken's department, Milken refused to talk with Drexel (which launched its own internal investigation) except through his lawyers.<ref name="HC"/><ref name="April Fools"/> It turned out that Milken's legal team believed Drexel would be forced to cooperate with the government at some point, believing that a securities firm would not survive the bad publicity of a long criminal and SEC probe.<ref name="denofthieves"/>

For two years, Drexel insisted that nothing illegal had occurred, even when the SEC sued Drexel in 1988. Later that year, Giuliani began considering an indictment of Drexel under the powerful [[Racketeer Influenced and Corrupt Organizations Act|Racketeer Influenced and Corrupt Organizations (RICO) Act]]. Drexel management, concluding that a financial institution could not possibly survive a RICO indictment, immediately began plea bargain talks. However, talks collapsed on December 19, when Giuliani made several demands that went beyond even what those who believed an indictment would destroy the firm were willing to accept. For example, Giuliani demanded that Milken leave the firm if indicted.<ref name="April Fools"/>

Only a day later, Drexel lawyers discovered suspicious activity in one of the limited partnerships Milken set up to allow members of his department to make their own investments. That entity, MacPherson Partners, had acquired several [[warrant (finance)|warrants]] for the stock of [[Storer Broadcasting]] in 1985. At the time, [[Kohlberg Kravis Roberts]] was in the midst of a [[leveraged buyout]] of Storer, and Drexel was lead [[Underwriting|underwriter]] for the bonds being issued. One of Drexel's other clients bought several Storer warrants and sold them back to the high-yield bond department. The department in turn sold them to MacPherson. This partnership included Milken, other Drexel executives, and a few Drexel customers. It also included several managers of [[money market fund]]s who had worked with Milken in the past. It appeared that the [[money manager]]s bought the warrants for themselves and did not offer the same opportunity to the funds they managed.<ref name="April Fools"/> Some of Milken's children also received warrants, according to Stewart, raising the appearance of Milken self-dealing.<ref name="denofthieves"/>

The warrants to money managers were especially problematic. At the very least, Milken's actions were a serious breach of Drexel's internal regulations, and the money managers had breached their [[fiduciary duty]] to their clients. At worst, the warrants could have been construed as [[bribery|bribes]] to the money managers, to influence decisions they made for their funds.<ref name="denofthieves"/>

Indeed, several money managers were eventually convicted on bribery charges.<ref>{{cite news|url=https://www.nytimes.com/1992/07/29/business/company-news-fund-manager-convicted-of-taking-milken-bribes.html|title=Fund Manager Convicted of Taking Milken Bribes|last=Sullivan|first=Ronald|work=The New York Times|date=July 29, 1992|access-date=February 11, 2017|archive-date=November 9, 2017|archive-url=https://web.archive.org/web/20171109154049/http://www.nytimes.com/1992/07/29/business/company-news-fund-manager-convicted-of-taking-milken-bribes.html|url-status=live}}</ref> The discovery of MacPherson Partners—whose existence had not been known to the public at the time—seriously eroded Milken's credibility with the board. On December 21, 1988, Drexel entered an [[Alford plea]] to six counts of stock parking and stock manipulation. It allowed Drexel to maintain its innocence while conceding that it "was not in a position to dispute" the allegations made by the government. As part of the deal, Drexel agreed that Milken had to leave the firm if indicted.<ref name="HC"/><ref name="April Fools"/>

===Indictment and sentencing===

[[File:Milken Family Foundation Award - 39881905411.jpg|thumb|Milken in 2018]]
In March 1989, a [[federal grand jury]] indicted Milken, [[Lowell Milken]], and Bruce L. Newberg, a former Drexel junk bond trader, on 98 counts<ref>''Los Angeles Times Archives'' (March 30, 1989). [https://www.latimes.com/archives/la-xpm-1989-03-30-fi-916-story.html  The Milken Indictment: The Insider Chronology.]</ref> of [[racketeering]], [[mail fraud]] and [[securities fraud]] and sought $1.845 billion in forfeitures.<ref>United States v. Milken, No. 89 Cr. 41 (KBW) (S.D.N.Y. 1989).</ref><ref>Wood, K. M., Hayes, R. S., & Carroll, J. (1990). United States v. Michael Milken, (S) 89 Cr. 41 (KMW) (S.D.N.Y. November 21, 1990). Federal Sentencing Reporter, 3(3), 158–166. https://doi.org/10.2307/20639317</ref> The indictment included a long list of misconduct, including [[insider trading]], [[tax evasion]], [[stock manipulation]], [[tax fraud]], stock parking (concealing "Drexel's ownership of 6f securities by causing the securities to be secretly purchased or sold through affiliates of [[Ivan Boesky|Boesky]] or Princeton/Newport for the purpose of gaining secret and unlawful advantages and profits in corporate takeover contests"), and other crimes.<ref>[https://www.sechistorical.org/collection/papers/1980/1989_0413_USBoeskySupplemental.pdf  United States of America, v. Ivan F. Boesky, Defendant. No. 87 Cr. 378(MEL). United States District Court, S.D. New York. December 16, 1987.] ''see'' footnote 11, citing United States v. Milken, No. 89 Cr. 41 (KBW) (S.D.N.Y. 1989). 7.</ref> One charge was that Boesky paid Drexel $5.3 million in 1986 for Milken's share of profits from illegal trading. This payment was represented as a consulting fee to Drexel. Shortly afterward, Milken resigned from Drexel and formed his own firm, International Capital Access Group.<ref name="HC"/><ref name="April Fools"/>

Milken's protege [[Terren Peizer]] had worked as a [[junk bond]] salesman for Milken, managing an account with which Drexel had an illegal arrangement that included insider trading and phony tax losses.<ref>{{Cite web|url=https://www.tampabay.com/archive/1990/10/20/dow-up-again/|title=Dow Up Again|website=Tampa Bay Times|date= October 20, 1990}}</ref><ref>{{cite web | url=https://books.google.com/books?id=z-gCAAAAMBAJ&dq=Terren+Peizer&pg=PA45 | title=New York Magazine | date=September 16, 1991 }}</ref><ref>{{Cite book|url=https://books.google.com/books?id=a9_Z413-J1IC&dq=Terren+Peizer+%22first+boston%22&pg=PA258|title=Den of Thieves|first=James B.|last=Stewart|date=2012|publisher=Simon and Schuster|isbn=9781439126202}}</ref><ref>{{Cite web|url=https://www.nytimes.com/1990/11/28/business/witness-against-milken-settles-sec-charges.html|title=Witness Against Milken Settles S.E.C. Charges|first=Kurt|last=Eichenwald|date=November 28, 1990|work=The New York Times}}</ref><ref>{{cite book |last=Kornbluth|first=Jesse|title=Highly confident: The Crime and Punishment of Michael Milken|page=213|year=1992|publisher=[[William Morrow and Co.]]}}</ref><ref>{{cite book|url=https://books.google.com/books?id=2xclCwAAQBAJ&q=dancing%20at%20the%20predator's%20ball%20peizer&pg=PA143|title=Hit & Run: How Jon Peters and Peter Guber Took Sony for a Ride in Hollywood|isbn=9781439128046|last1=Griffin|first1=Nancy|last2=Masters|first2=Kim|date= 2016|publisher=Simon and Schuster }}</ref> Peizer provided material evidence to prosecutors against Milken.<ref>[https://www.sechistorical.org/collection/papers/1980/1989_0413_USBoeskySupplemental.pdf "DEFENDANT' SUPPLEMENTAL MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR REDUCTION OF SENTENCE Pursuant to Rule 35(b)"], ''US v. Boesky'', United States District Court for the Southern District of New York, April 13, 1989.</ref> At Milken's pre-sentencing hearing for [[securities fraud]] in 1990, Peizer testified against Milken in exchange for [[Legal immunity|immunity]] from both [[criminal prosecution]] and [[U.S. Securities and Exchange Commission|SEC]] sanctions.<ref name="NYT4thImmunity">{{Cite news |last=Labaton |first=Stephen |date=December 10, 1988 |title=4th Drexel Employee in Immunity Bargain |language=en-US |work=The New York Times |url=https://www.nytimes.com/1988/12/10/business/4th-drexel-employee-in-immunity-bargain.html |access-date=November 25, 2020 |issn=0362-4331}}</ref><ref>{{Cite book|url=https://books.google.com/books?id=gm5QDwAAQBAJ&dq=%22milken%22+%22peizer%22&pg=PA11|title=Banking on Fraud: Drexel, Junk Bonds, and Buyouts|first=Mary|last=Zey|date=September 29, 2017|publisher=Routledge|isbn=9781351314831}}</ref><ref name="auto3">David A. Vise (September 12, 1989). [https://www.washingtonpost.com/archive/business/1989/09/12/new-charges-against-milken-expected/d86dabac-98f1-4a91-a2a4-628b939860c5/ "New Charges against Milken Expected"], ''The Washington Post''.</ref>

On April 24, 1990, Milken pleaded guilty to six counts of securities and tax violations.<ref name="forbes-p" /> Three of them involved dealings with Boesky to conceal the real owner of a stock:<ref name="ThreeFelonies" />

*Aiding and abetting another person's failure to file an accurate [[Schedule 13d|13d statement]] with the SEC, since the schedule was not amended to reflect an understanding that any loss would be made up
*Sending confirmation slips through the mail that failed to disclose that a commission was included in the price
*Aiding and abetting another in filing inaccurate [[broker-dealer]] reports with the SEC

Two other counts were related to tax evasion in transactions Milken carried out for a client of the firm, David Solomon, a fund manager:<ref name="ThreeFelonies" />

*Selling stock without disclosure of an understanding that the purchaser would not lose money
*Agreeing to sell securities to a customer and to buy those securities back at a real loss to the customer, but with an understanding that he would try to find a future profitable transaction to make up for any losses

The last count was for conspiracy to commit these five violations.

As part of his plea, Milken agreed to pay $200 million in fines. At the same time, he agreed to a settlement with the SEC in which he paid $400 million to investors who had been hurt by his actions. He also accepted a lifetime ban from any involvement in the securities industry. In a related civil lawsuit against Drexel, he agreed to pay $500 million to Drexel's investors.<ref name="NYT-drexel-sues-milken">{{cite news |newspaper=The New York Times |date=September 12, 1991 |url=https://www.nytimes.com/1991/09/12/business/drexel-sues-milken-seeking-repayment.html |title=Drexel Sues Milken, Seeking Repayment |access-date=February 11, 2017 |archive-date=February 4, 2017 |archive-url=https://web.archive.org/web/20170204192423/http://www.nytimes.com/1991/09/12/business/drexel-sues-milken-seeking-repayment.html |url-status=live }}</ref><ref name="NYT-milken-to-pay">{{cite news |newspaper=The New York Times |date=February 18, 1992 |url=https://www.nytimes.com/1992/02/18/us/milken-to-pay-500-million-more-in-1.3-billion-drexel-settlement.html |title=Milken to Pay $500 Million More In $1.3 Billion Drexel Settlement |access-date=February 11, 2017 |archive-date=February 4, 2017 |archive-url=https://web.archive.org/web/20170204192358/http://www.nytimes.com/1992/02/18/us/milken-to-pay-500-million-more-in-1.3-billion-drexel-settlement.html |url-status=live }}</ref>

Critics of the government charge that the government indicted Milken's brother [[Lowell Milken|Lowell]] to pressure Milken to settle, a tactic some legal scholars condemn as unethical. "I am troubled by – and other scholars are troubled by – the notion of putting relatives on the bargaining table," said Vivian Berger, a professor at [[Columbia University Law School]], in a 1990 interview with ''[[The New York Times]]''.<ref>{{cite news |work=The New York Times |date=May 6, 1990 |url=https://www.nytimes.com/1990/05/06/weekinreview/tactics-in-wall-street-cases-troubling-some-lawyers.html |title=Tactics in Wall Street Cases Troubling Some Lawyers |access-date=February 11, 2017 |archive-date=February 4, 2017 |archive-url=https://web.archive.org/web/20170204192443/http://www.nytimes.com/1990/05/06/weekinreview/tactics-in-wall-street-cases-troubling-some-lawyers.html |url-status=live }}</ref> As part of the deal, the case against Lowell was dropped. Federal investigators also questioned some of Milken's relatives about their investments.<ref name="HC"/>

At Milken's sentencing, Judge [[Kimba Wood]] told him:

{{blockquote|You were willing to commit only crimes that were unlikely to be detected.{{nbsp}}... When a man of your power in the financial world{{nbsp}}... repeatedly conspires to violate, and violates, securities and tax business in order to achieve more power and wealth for himself{{nbsp}}... a significant prison term is required.<ref name="denofthieves">{{cite book|title=Den of Thieves|page=517|author=Stewart, James B.|year=1992|isbn=0-671-79227-X|edition=reprint|publisher=Simon & Schuster|url=https://books.google.com/books?id=xNHIpVJgcHgC&q=%22When+a+man+of+your+power+in+the+financial+world.%22&pg=PA517|access-date=April 22, 2016|archive-date=May 14, 2016|archive-url=https://web.archive.org/web/20160514213736/https://books.google.com/books?id=xNHIpVJgcHgC&pg=PA517&lpg=PA517&dq=%22When+a+man+of+your+power+in+the+financial+world.%22#v=onepage&q=%22When%20a%20man%20of%20your%20power%20in%20the%20financial%20world.%22&f=false|url-status=live}}</ref>}}

In statements to a [[parole board]] in 1991, Judge Wood estimated that the "total loss from Milken's crimes" was $318,000, less than the government's estimate of $4.7 million, and she recommended that he be eligible for parole in three years.<ref>{{cite news|title=Judge Who Gave Milken 10 Years Wants Him Eligible for Parole in 3|last=Eichenwald|first=Kurt|newspaper=The New York Times|date=February 20, 1991|url=https://www.nytimes.com/1991/02/20/business/judge-who-gave-milken-10-years-wants-him-eligible-for-parole-in-3.html?pagewanted=all|access-date=February 11, 2017|archive-date=May 8, 2016|archive-url=https://web.archive.org/web/20160508033759/http://www.nytimes.com/1991/02/20/business/judge-who-gave-milken-10-years-wants-him-eligible-for-parole-in-3.html?pagewanted=all|url-status=live}}</ref> Milken's sentence was later reduced to two years from ten; he served 22 months.<ref name="Case Studies in Business Ethics">Al Gini & Alexei M. Marcoux [https://books.google.com/books?id=pU9EAAAAYAAJ&q=%22Michael+Milken%22+released Case Studies in Business Ethics] {{Webarchive|url=https://web.archive.org/web/20160328222258/https://books.google.com/books?id=pU9EAAAAYAAJ&q=%22Michael+Milken%22+released&dq=%22Michael+Milken%22+released&hl=en |date=March 28, 2016 }}; accessed April 24, 2018.</ref><ref>[http://www.economist.com/node/17306419 "Stars of the junkyard - Twenty years after Michael Milken's junk-bond firm came crashing down, the financial revolution that it fostered lives on"] {{Webarchive|url=https://web.archive.org/web/20121019173049/http://www.economist.com/node/17306419 |date=October 19, 2012 }}, economist.com, October 21, 2010.</ref>

===2013 SEC investigation===

In February 2013, the SEC announced that they were investigating whether Milken violated his lifetime ban from the securities industry. The investigation concerned Milken's allegedly providing investment advice through [[Guggenheim Partners]].<ref>{{cite news|url=https://www.latimes.com/business/money/la-fi-mo-michael-milken-sec-guggenheim-partners-20130227,0,326262.story|title=SEC is investigating Michael Milken, magazine says|newspaper=Los Angeles Times|access-date=March 26, 2013|archive-date=March 5, 2013|archive-url=https://web.archive.org/web/20130305095917/http://www.latimes.com/business/money/la-fi-mo-michael-milken-sec-guggenheim-partners-20130227,0,326262.story|url-status=live}}</ref> Since 2011, the SEC had been investigating Guggenheim's relationship with Milken.<ref>{{cite news|url=https://www.latimes.com/sports/dodgersnow/la-sp-dn-sec-investigation-20130227,0,4840625.story|title=Dodgers' Guggenheim subject of SEC probe over Michael Milken ties|newspaper=Los Angeles Times|access-date=March 26, 2013|archive-date=March 16, 2013|archive-url=https://web.archive.org/web/20130316153851/http://www.latimes.com/sports/dodgersnow/la-sp-dn-sec-investigation-20130227,0,4840625.story|url-status=live}}</ref>

===Presidential pardon===
[[File:2020-02-18 Trump padron for Michael Robert Milken-milken-michael robert pardon warrant 2.18.20.pdf|thumb|February 2020 pardon granted by Donald Trump]]
In June 2018, it was reported that some of president [[Donald Trump]]'s supporters and friends, including [[Kevin McCarthy]], [[Rupert Murdoch]], [[Sheldon Adelson]], [[Elaine Chao]], and [[Rudy Giuliani]], the onetime federal prosecutor whose criminal investigation led to Milken's conviction, were urging the president to pardon Milken.<ref>{{Cite web|last=Mangan|first=Dan|date=February 18, 2020|title=Trump pardons Michael Milken, face of 1980s insider trading scandals|url=https://www.cnbc.com/2020/02/18/trump-pardons-michael-milken-face-of-1980s-financial-scandals.html|access-date=November 29, 2021|website=CNBC|language=en}}</ref> Milken's attempts to secure a presidential pardon spanned multiple administrations.<ref>{{Cite news |first1=Greg |last1=Farrell |first2=Katherine |last2=Burton |first3=John |last3=Gittelsohn |url=https://www.bloomberg.com/news/articles/2018-06-15/trump-insiders-are-said-to-seek-pardon-for-milken-king-of-junk |title=Trump Insiders Seek Pardon for 'Junk Bond King' Michael Milken |work=[[Bloomberg.com]] |date=June 15, 2018 |access-date=June 18, 2018 |language=en |archive-date=June 15, 2018 |archive-url=https://web.archive.org/web/20180615175217/https://www.bloomberg.com/news/articles/2018-06-15/trump-insiders-are-said-to-seek-pardon-for-milken-king-of-junk |url-status=live }}</ref>

On February 18, 2020, Trump granted a full pardon to Milken.<ref>{{cite news |url=https://www.washingtonpost.com/politics/trump-grants-clemency-to-former-nypd-commissioner-bernie-kerik-financier-michael-milken/2020/02/18/566e9f78-5280-11ea-80ce-37a8d4266c09_story.html |title=Trump grants clemency to former NYPD commissioner Bernie Kerik, financier Michael Milken |date=February 18, 2020 |access-date=February 18, 2020 |newspaper=The Washington Post |agency=[[Associated Press]] |archive-date=February 20, 2020 |archive-url=https://web.archive.org/web/20200220094926/https://www.washingtonpost.com/politics/trump-grants-clemency-to-former-nypd-commissioner-bernie-kerik-financier-michael-milken/2020/02/18/566e9f78-5280-11ea-80ce-37a8d4266c09_story.html |url-status= }}</ref><ref>{{cite news |last1=Baker |first1=Peter |last2=Haberman |first2=Maggie |last3=Shear |first3=Michael D. |title=Trump Commutes Corruption Sentence of Governor Rod Blagojevich of Illinois |url=https://www.nytimes.com/2020/02/18/us/politics/trump-pardon-blagojevich-debartolo.html |access-date=February 18, 2020 |newspaper=The New York Times |date=February 18, 2020 |archive-date=February 18, 2020 |archive-url=https://web.archive.org/web/20200218184524/https://www.nytimes.com/2020/02/18/us/politics/trump-pardon-blagojevich-debartolo.html |url-status=live }}</ref> However, his previous trading license which he lost following his conviction still remained void, and he would still have to reapply and obtain a new trading license in order to return to trading securities.<ref>{{cite news|url=https://www.foxbusiness.com/business-leaders/junk-bond-king-could-go-back-to-wall-street-after-presidential-pardon|title=Milken, 'Junk Bond King,' could return to Wall St. after Trump pardon|website=Fox Business|date=February 18, 2020|access-date=February 19, 2020|archive-date=February 19, 2020|archive-url=https://web.archive.org/web/20200219145010/https://www.foxbusiness.com/business-leaders/junk-bond-king-could-go-back-to-wall-street-after-presidential-pardon|url-status=live}}</ref>