President Trump has taken some criticisms for the pardons he recently issued, so let’s take a look at one of them: Michael Milken. In 1990, Milken pleaded guilty to a technical securities offense, for which he was pardoned on Tuesday. Milken was an outsider who took on a cozy establishment, beat them at their own game, and then was chewed up and spit out by a shameful criminal law system. His pardon was well-deserved.
Milken came from a humble background. As a nerdy Jewish teenager, he attended a public high school in Encino, California, and his rise was a great example of the American Dream. He wasn’t a member of the club, but he got a job at the white-shoe, Philadelphia-based Drexel Burnham Lambert investment firm, where he was quickly recognized as a whiz.
He ran his operations through a Wilshire Boulevard office in Beverly Hills, California, run as a quasi-independent firm. He’d arrive at work at 4:00 a.m. to be ready for the New York markets when they opened at 6:00 a.m. Pacific time and simply beat the competition in picking undervalued companies. Back east, investment bankers focused on a firm’s historical earnings and physical assets and ignored better predictors of future earnings, such as the quality of management and prospects for growth, things Milken saw as more important. As his reputation for picking winners grew, Milken attracted some of the wealthiest venture capitalists as clients, people such as T. Boone Pickens and Carl Icahn, and Drexel became known as a firm that could raise billions of dollars to finance a takeover of a company within a matter of hours.
Soon, the Beverley Hills office was the tail wagging the Philadelphia dog.
None of this won him any friends back east, however — not on Wall Street, in the legal academy, or on the Securities and Exchange Commission. The high-yield securities he was pushing were junk bonds, and worse still, he wasn’t sharing his profits with Wall Street underwriters. There had been a tradition that lead underwriters on a deal would pass on part of the securities to be sold to other underwriters, but Milken wasn’t having any of that. Drexel found it could raise billions of dollars to finance a takeover all by itself, and it did just that.
None of this went down well with the country’s opinion leaders: Time, the New York Times, the New York Review of Books, and other establishment journals. Milken’s junk bonds were portrayed as a plague that every decent person should condemn. What Milken was really doing was helping to break up the oversized fat-cat corporate behemoths. They had wastefully sat on piles of money, and splitting them apart released billions of dollars into the economy. As such, Milken was an important contributor to the economic recovery during the Reagan years.
It’s easy enough to ignore the New York Review of Books. It’s harder for a businessman to ignore populist criminal law and grandstanding, politically ambitious prosecutors such as Rudy Giuliani. Milken had revitalized the country’s economy, but for his pains was fined $600 million, sentenced to 10 years (later reduced to two) in prison, and required to perform three years of community service.
The state had used all the pressure at its command to force Milken to plead guilty to victimless offenses that had previously not been thought criminal. Prosecutors changed the rules in the middle of the game and radically expanded the scope of the criminal law to include harmless practices. It offered very lenient plea bargains to notorious liars such as Ivan Boesky (“greed is healthy”) in exchange for their promises to implicate Milken. Further, it threatened to prosecute Milken’s brother and sent FBI agents to visit his 93-year-old grandfather, using them as bargaining chips to get Milken to plead guilty. The state also waved the prospect of a Racketeering Influenced and Corrupt Organizations order at Drexel, securing a guilty plea from it as well as the firm’s cooperation in the prosecution’s pursuit of Milken.
Since his release from prison, Milken has led an exemplary life and is a huge philanthropist, and that alone would merit a pardon. His foundation tackles medical illnesses, especially prostate cancer, from which he suffers. But simply as an innovator who took on a financial establishment, helped turn our economy around, and was unfairly prosecuted for his efforts, Milken deserved the pardon.
F.H. Buckley (@fbuckley) teaches at Scalia Law School. His most recent book is American Secession: The Looming Threat of a National Breakup (Encounter, 2020).
