MILKEN, MICHAEL R.

born July 4, 1946, Encino, Calif., U.S. American financier whose junk-bond operations fueled many of the corporate takeovers of the 1980s. Milken studied business at the University of California, Berkeley, graduating in 1968. In 1969, while studying at the University of Pennsylvania's Wharton School of Finance, he began working at the Drexel Firestone banking firm, which soon afterward merged with Burnham & Company to form what became Drexel Burnham Lambert Inc., a major investment banking company. In 1971 Milken became head of Drexel Burnham's bond-trading department. He saw great potential in the neglected area of junk bondsi.e., non-investment-grade bonds that were typically issued by smaller, newer companies or by established firms whose fortunes had soured. Though junk bonds earned substantially higher rates of return than did investment-grade bonds, they were also regarded as more liable to default and hence were considered too risky by the large institutional investorssavings and loan associations, pension funds, insurance companies, and mutual fundsthat provided American corporations with much of their investment capital. Milken's studies showed that junk bonds had acceptable default rates for their higher yield, and he began persuading a growing number of institutions to buy them. By 1984 Drexel Burnham was able to raise large amounts of capital by floating new issues of junk bonds, which Milken used to provide financing for a new class of entrepreneurs and corporate raiders to expand their businesses or acquire other companies. Milken's vast and increasingly powerful junk-bond network fostered the merger mania of the 1980s, in which his clients, partners, and allies, among others, engaged in a wave of corporate mergers, acquisitions, hostile takeovers, and leveraged buyouts. By the end of the 1980s, the junk-bond market had grown to $150 billion in size, and Drexel Burnham had become one of the leading financial firms in the United States. Milken's own operations accounted for at least half of the firm's profits, and his own salary jumped from $25,000 in 1970 to $550 million in 1987the highest annual compensation to that time. In 1986, however, one of Drexel's clients, Ivan Boesky, was convicted of insider trading, and he implicated Milken and Drexel Burnham Lambert in his illegal financial dealings. In 1988 both Milken and Drexel Burnham were charged with securities fraud. Drexel reached a settlement with the government later that year, agreeing to pay $650 million in fines, and Milken left the firm in 1989. Without Milken's controlling hand, his network of junk-bond issuers and buyers fell apart, and soon afterward the junk-bond market collapsed, leading to Drexel Burnham's bankruptcy in 1990. Milken pled guilty to six counts of securities fraud that same year; he was sentenced to 10 years in prison, ordered to pay fines totaling $600 million, and permanently barred from engaging in the securities business.