Chairman, Milken Institute; Co-founder of the Milken Family Foundation, Santa Monica, Calif.
Michael Milken, known as the junk bond king, virtually invented the use of high-yield bonds to finance companies that were too weak, too small or too immature to attract capital more traditionally. In the process, he helped launch the LBO.
Beginning in 1969, when he joined the firm that would become Drexel Burnham Lambert Inc., Mr. Milken devised the idea of using high-yield securities to finance companies whose bonds would be rated below investment grade. The theory was that these high-yield securities or junk bonds would be higher risk, but higher yield.
This strategy made Mr. Milken a multimillionaire. In 1986, Drexel paid Milken $296 million; in 1987, $550 million.
Two years later, however, the government charged Mr. Milken with securities law, reporting and racketeering violations. He pleaded guilty to five counts of securities fraud, and was sentenced in 1990 to a $200 million fine and 10 years in prison. He also was barred from the securities business for life. His sentence was reduced, and he served 22 months. That same year, Drexel and the junk bond market collapsed.
In 1993, Mr. Milken established a foundation to search for a cure for cancer; in 1996, he founded Knowledge Universe, an educational services company. Since his release from prison, Mr. Milken has declined all interviews on the financial markets. But according to his website, he is considering writing his side of the controversy "to complete and correct the historical record."
"I have mixed feelings about (Mr.) Milken. He challenged the corporate world to put shareholders first and did so by taking over the management teams that did not do that," said Robert D. Arnott, chairman of First Quadrant LP, Pasadena, Calif., and editor of the Financial Analysts Journal. "The leveraged buyout and the hostile takeover were businesses he helped to launch … (But) he appeared to have placed the quest for profits ahead of … adherence to the law. I think he was the scapegoat for the me-first generation."