When Michael Milken, former head of the junk bond department at Drexel Lambert Burnham Inc., pleaded guilty to six felony counts Tuesday, he put the final note to a chapter of Wall Street history marked by soaring profits, greed and, ultimately, disillusionment.
Milken, 43, dressed in a dark blue suit, repressed a cough and choked back tears as he entered his guilty plea in a U.S. District Court in Manhattan, only a few blocks from Wall Street, where he was a titan in the 1980s.
As he created the high-yield, high-risk junk bond market to finance corporate takeovers from his base in Beverly Hills, Calif., Milken drew up an ambitious scenario for corporate America that read like a script from the neighboring Hollywood studios.
Milken told the business community that the boldest takeover attempts, daring multibillion-dollar investments with virtually no money down and unprecedented profits, were possible by raising funds from investors eager to collect a record return on their dollar.
Although Milken did not flaunt the flamboyant attitude that became the trademark of Drexel, the relatively obscure firm he build up into a Wall Street powerhouse, his name inspired both awe and envy in the financial community where he single-handedly taught a lesson in innovative investment strategy.
Drexel was a key player in spectacular highly leveraged takeovers, such as the acquisitions of food giants Beatrice and RJR Nabisco.
Economist Henry Kauffman once described Milken and his Drexel colleagues as a group of 'financial buccaneers' who gave corporate raiders the tools to attack the staunchest business citadels in America.
Milken, born in Los Angeles in 1946, had just graduated with a degree in business administration from the University of California at Berkeley when he joined Drexel's West Coast operations on a part-time basis at the age of 23.
In less than a year he became assistant to the firm's chief executive officer, moving quickly to the fixed-income department where he created a secondary market for trading high-yield bonds.
Colleagues attributed Milken's success in persuading investors that the rewards of junk bonds were worth the risks to his charismatic drive and the iron grip he maintained on all levels of his business operations.
Detractors later said that by involving himself directly in negotiations with investors and corporations, Milken often forgot the boundaries of ethical practices, which later resulted in his 1989 indictment on insider trading and racketeering charges.
Under Milken, Drexel's portfolio soared from a mere $1.4 billion in 1980 to $61.5 billion in 1986.
Milken was handsomely rewarded for creating the $200 billion junk bond market, which Drexel once said gave the United States the 'abilities to serve its growing domestic markets and compete effectively on a global scale.'
The fine and penalty the billionaire agreed to pay as part of his guilty plea Tuesday amount to $600 million, or just a little more than the $550 million income Milken received from Drexel in just one year at the peak of his career.
But as the junk bond market rocketed in 1986, Milken's and Drexel's troubles began. U.S. Attorney Rudolph Giuliani, who make an unsuccessful run for mayor of New York in 1989, began questioning the legality of some big deals on Wall Street. In May 1986 the Securities and Exchange Commission charged Dennis Levine, a Drexel merger specialist, with insider trading.
Levine entered a plea bargain arrangement in which he implicated stock speculator Ivan Boesky, who pleaded guilty to one felony count in 1987, agreed to pay a $100 million fine and was later sentenced to three years in jail.
Boesky, in turn, pledged full cooperation with prosecutors and named Milken as part of an insider trading network.
In 1988, the SEC accused Drexel, Milken and three other executives of violating a wide range of securities laws. Drexel agreed to pay a record $650 million fine to settle the largest securities fraud case in history.
Drexel fired Milken after his indictment in March 1989 on 98 counts and fraud and racketeering. The indictment also named Milken's brother, Lowell, and a partner. The three men pleaded innocent.
Last fall the junk bond market collapsed in a selloff triggered by a loss of confidence on the part of investors who witnessed bankruptcy filings at many heavily leveraged companies.
Drexel, unable to meet $100 million in financial obligations, filed for bankruptcy protection Feb. 13 and started liquidating its assets and operations.
Milken told the court he was willing to enter a guilty plea to end the public ordeal that his family, including his wife Lori and their three children, had been subjected to since the government investigation began.
He is expected to spend the next few months at his Encino, Calif., mansion, awaiting sentencing Oct. 1.
