Every year, hundreds of Wall Street's most powerful investment bankers and hedge fund managers travel to Los Angeles to attend the Milken Conference, which is one of the most prestigious Finance events in the world. It's so prestigious that in 2017, former Vice President Joe Biden had a long public conversation with the conference's namesake founder. Michael Milken known as the Junk Bond King Michael Milken is a multi-billionaire and to this day is regarded as a revolutionary financier. Not only that, but he is also a convicted Criminal Who masterminded one of America's biggest cons defrauding ordinary investors out of hundreds of millions and possibly even billions of dollars as a result of his fraud Drexel Burnham Lambert which is one of the largest investment banks in the country at the time collapsed Despite his numerous crimes and the Damage he has caused the U.S financial system.

Former President Donald Trump pardoned him in the last days of his administration. To this day, Milken continues to live a life of luxury with an estimated net worth of 6 billion dollars. In this video, we'll delve into the shocking story of how Michael Milkian, the world's most evil billionaire scammed America Now while we explore the complex world of Finance in the tales of its notorious Figures It's also important to remember that each one of us has a unique story to tell. our backgrounds, our Origins and our heritage shape Us in profound ways.

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But the revelations weren't limited to my ethnic breakdown. My Heritage DNA also connected me with distant relatives based on DNA matches. It was like uncovering a hidden chapter of my family history. This is the beauty of my Heritage DNA It's not just a test, it's a journey into your past that you get to explore and understand.

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Generally speaking, the universe of corporate bonds can be segregated into two types: investment grade bonds and so-called high-yield bonds, which are colloquially referred to as junk bonds. Investment grade bonds are issued by well-established and profitable companies. For example, Apple's bonds are considered investment grade. There is almost zero probability that they default within the foreseeable future because they're considered so safe.

Their yields are very low. On the other hand, currently, most bonds issued by cruise ship operators are considered to be junk bombs. During the pandemic, they were forced to take on large amounts of new debt to stay afloat, both literally and figuratively. This puts them in a more precarious position as the risk of default is much greater.

Thus, the yields on these bonds are higher. To compensate investors for the risk, whether a bond is considered to be investment grade or junk is decided by credit rating agencies such as Pitch Ratings and Moodies. If these agencies decide that your bonds are investment grade, you'll be able to sell your bonds for very low yields and vice versa. According to Hickman's research, the higher yields on junk Bonds were more than enough to compensate for the risk.

An investor who buys junk bonds would indeed suffer more defaults, but the higher yield that they generate from the bonds that don't default would more than compensate these losses. He thus argued that investing in junk bonds is a superior investment strategy than investment grade bonds. Michael Milken was heavily influenced by Hickman's research. Upon graduating from Wharton, he got a job at a company called Drexel which was one of the most prestigious investment banks at the time.

He went to the superiors and asked if he could start a junk bond trading operation. Drexel's top brass were skeptical efforts. At the time, most institutional investors were risk averse and only invested in investment grade bonds. Drexel's leadership team feared that they may not be able to find enough buyers for these bonds.

But due to Milliken's persistence, they eventually agreed to start a junk bond trading operation which milking would hit. Milton Spent the next few years traveling around. Wall Street meeting with every hedge fund and mutual fund manager who had given the time of day. He would draw on Hickman's research to give highly convincing sales pitches that they would make far greater returns if they abandoned their prior conservatism and gave junk bonds a chance.

With his impressive abilities as a Salesman, Milken had two main sources for originating junk bonds. There were thousands of early stage and struggling companies who Banks refused to lend money to because they were too risky. They were also unable to sell bonds as they lack the coveted investment grade credit rating. When Milking came to them asking if he could arrange for them to issue junk bonds, they were ecstatic as this was the first time they could access large amounts of capital to expand their operations.

Around that same time, in the 1970 disease, the private Equity industry was starting to enter the mainstream. With the rise of firms like KKR and Blackstone, they would become Milken's second source of junk. Fon issuance. One of the main ways these private Equity Funds made money is with leveraged buyouts.

This strategy involves first identifying publicly traded companies which they believe are run inefficiently and have very little debt on their balance sheet. They would proceed to borrow huge amounts of money and use this to acquire a controlling State and then take the company private. Once they have full control, they would usually Implement a headcount rationalization plan. The goal is to increase profitability by trimming the fat.

In other words, laying off large numbers of redundant and unnecessary employees if done right. This can be a highly profitable investment strategy as it Returns on Equity investment are multiplied by large amounts of Leverage This strategy is also highly risky because the target companies are saddled with huge amounts of debt. If their cost cutting efforts fail to produce enough profits, the company can go bankrupt. Prior to the milking era, leveraged buyouts were not very common, even if the target companies were high quality businesses.

The large debt loads made them far too risky to achieve investment grade credit ratings. So when Milken went to the private Equity firms and said that he could find buyers for their junk bonds, they were also ecstatic and he quickly became one of the most popular men on Wall Street In the early 1970s, the junk bond market was almost non-existent but thanks to by the 1980s, it ballooned to be worth hundreds of billions of dollars with every issuance of a junk bond. Drexel earned a sizable commission as the head of the junk bond. Department Milton received a substantial portion of these earnings in the form of performance-based bonuses by the mid-1980s This propelled him to become one of Wall Street's highest paid individuals.

In 1987 alone, Milken personally took home 550 million dollars of bonus payments. Everything appeared to be progressing smoothly by pioneering an entirely New Market Milken The uncontested king of junk bonds amassed a multi-billion dollar Fortune but there was one problem: Milken's seemingly impressive achievements were erected on what would later be exposed as potentially the largest fraud in American history. Laughs! Milken was a great salesman and he was able to legitimately convince many institutional investors to buy the junk bonds he was selling. but there was a limit to this no matter how Milken tried to spin it.

Junk bonds are issued by low quality companies, and they are significantly more risky than investment grade debt. A significant portion of investors still refused to touch them. After Milking exhausted his normal sales tactics, he moved on to less than legitimate means. Fidelity Investments was and still is one of the largest mutual fund companies in the U.S Mutual funds are investment vehicles that cater towards ordinary mom and pop investors who lack the time and expertise to pick individual stocks and bonds on their own.

The money from hundreds or even thousands of investors are pulled together into mutual funds. Each mutual fund is run by an experienced portfolio manager whose tasked with picking individual stocks and bonds for the mutual fund to buy. The portfolio manager has a legal responsibility to act in the best interest of the clients. The only thing he or she is allowed to consider is which stock or Bond will yield the best risk-adjusted returns.

In the 1980s, one of Fidelity's portfolio managers was a woman named Patricia Ostrander. She was responsible for managing a 1.7 billion dollar mutual fund that invested primarily in Bonds. In 1985, she directed her mutual funds to purchase 95 million dollars worth of junk bonds of dubious value from Drexel's junk bond. Department run by Michael Milken The Investment Bank earned millions of dollars in fees on this sale at the same time as this was happening.

The private Equity Firm KKR was pursuing a leveraged buyout of a television company called Storer Communications KKR Hired Moken to help them raise junk bonds to fund this transaction. Here's how the store transaction was structured: KKR created a limited liability holding company called SCI Corp whose sole purpose is to own store Communications It's normal for private Equity Funds to create holding companies like this for their Acquisitions. This way they can have SCI issue the bonds to fund the transaction. if store goes bankrupt, SCI Corp will become worthless.

but because it is limited liability, the financial the KKR itself will be limited. KKR hires Drexel run by Michael Milken to issue junk Bonds on behalf of Sci Corp as compensation SCI issues warrants to Drexel A warrant is basically a call option which allows Drexel to purchase shares of Sci at a specific price. In the future, if the value of Sci increases above the strike price of the warrants, Drexel can exercise them for a profit. It is common for Investment Bank to receive warrants as compensation for deals to help arrange the warrants.

Give the Investment Bank upside potential if the deal successful. In the case of Sci, the warrants had a very low strike price, making them extremely valuable. Nolken offered to sell these SCI warrants to Patricia Ostrander not to the Fidelity Fund she managed, but to her personally, these warrants were not publicly traded and were thus not available to the general public. This was an exclusive deal that Milking led her in on.

Ostrander put in thirteen thousand dollars to buy the warrants. When they were exercised, they were worth 589 thousand dollars, yielding her a 45 times gain. Such spectacular investment results are not normal to say the least. Adjusted for inflation, the gained sheet pocketed were equivalent to 1.7 million dollars, a hefty sum, even for a well-paid portfolio manager.

This lucrative investment opportunity clearly constituted a bribe and is blatantly illegal. When Ostrander purchased 95 million dollars worth of junk bonds from milking in a completely separate transaction. she did so with the understanding that milking would let her in on the store warrants. The reason that they used this complicated warrant transaction is because it would be too suspicious to just hand her a suitcase full of cash.

There are two key conclusions we can draw from this primary: Scandal Firstly, the fact that Milk and Answer resort to bribery to sell some of his junk ponds shows that they weren't all they were cracked up to be. They were still risky investments in low. Quality Companies Who many investors were hesitant to buy. Secondly, it shows that Milking was highly intelligent.

Whenever he committed a fraud, he would add multiple layers of complexity, making it extremely difficult to expose. The Feds had long been suspicious of Milken's Junk Bond Empire, but he covered his tracks so well that for years, they were unable to find any actionable evidence against him. foreign. Throughout the 1970s and 80s, the Hedge fund manager Ivan Boski was one of the top dogs on Wall Street His Stellar investment results had earned him a personal fortune in the hundreds of millions of dollars.

Whenever a publicly traded company is acquired, the acquisition price is almost always at a substantial premium. If you could predict which companies were going to be acquired beforehand, you could buy the stock and reap a massive gain once the deal is announced. Bowski was one of the most successful investors employing this strategy. For years, the SEC had been suspicious of Boesky.

His perfectly timed trades seemed too good to be the result of investing Acumen alone. throughout the early 1980s, they called in in for questioning multiple times, but he always denied any wrongdoing. The Feds were never able to find any actionable evidence against him. The SEC suspicions turned out to be justified.

Bowski's world-beating investment returns were the result of a massive insider trading syndicate, with Michael Milken being one of his most important co-conspirators The relationship between Milking and Bowski was an alliance made in Hell Drexel's junk bond. Department provided financing for the private Equity firms doing corporate takeovers. They therefore knew about the takeovers before they were announced. Bowsky traded this talk to these firms.

If he knew which company bees would be acquired ahead of time, he can make massive and almost risk-free trading profits. They formed an informal quid pro quo: Milken would pass on valuable Insider information to inform Bosque's trades. in return. Boski would manipulate stock prices whenever Milken needed him to.

This was a highly lucrative arrangement for both men. It was also completely illegal. One example of this quid pro quo happened in 1986: Drexel had a client called Wix corporation which had 200 million dollars of preferred stock outstanding which yielded a 10 dividend. The preferred shares were redeemable, meaning that Wix had the option of buying them back at face value Wix wanted to buy back the stock so they could stop paying the sizeable dividend expense, but has a condition to redeem Wix Common stock needed to exceed 6.12 cents for 20 out of 30 consecutive trading days.

The share price was hovering right around this strike price in 1986. in fact, for 19 out of the past 28 days, it was above six dollars and 12 cents. But the share price was entering a downtrend and had decreased to six dollars. They were so frustratingly close, yet so far away.

So Milken took matters into his own hands. He called up both Keen told him to buy a bunch of Wick shares to pump up the price. All they needed was a two percent increase. Boski successfully pumped up the share price meaning the threshold for the preferred stock.

Redemption as Wix investment banker Drexel generated 2.3 million dollars in fees for executing the Redemption. Because there is no formal agreement between the two men, the conspiracy was almost impossible to prove. Maybe Boski just thought Wix was undervalued and bought the shares independently. It could have been a coincidence that it just so happened to help milk in.

While these manipulations might seem small individually, they have the effect of giving manipulators like Milken and Boski a slight advantage on each transaction at the cost of their counterparties. And because each manipulation is so small, it is very difficult for Regulators to detect. In 1986, the SEC finally got their lucky break when a Drexel employee named Dennis Levine called them with incriminating evidence about Brosky's insider trading. With Levine willing to testify against him, Boski knew it was game over.

He pled guilty to insider trading charges and accepted a three-year prison sentence and a record-breaking 100 million dollar fine. But there is no honor. Amongst Thieves Boski's three-year prison sentence was relatively lenient given the scale of his insider trading. He was able to get this deal by agreeing to snitch on his former friend and longtime co-conspirator Michael Milken Over the next few years, Milking became the Sec's number one target.

They pursued one of their most aggressive investigations to date, approaching his underlings at Drexel and threatening to charge them if they refused to testify against their boss. But being a billionaire, he was able to hire a dream team of defense attorneys who were eventually able to negotiate a plea bargain. Milken would plead guilty to Securities fraud, aiding a violation of SEC reporting rules, mail fraud, and aiding the filing of a false tax return. In return, the government agreed to drop the more serious charges of insider trading and bribery.

He was sentenced to 10 years in prison and had to pay a 600 million dollar fine. This was six times larger than the find that both he paid four years prior, which was record-breaking at the time. The prosecution made it clear that they believed Milking committed many more crimes than what he pleaded guilty to, but they accepted the lenient plea deal as they feared his High Caliber Defense team could prove a formidable opponent at a jury trial. To this day.

Malkin maintains his innocence regarding the more serious allegations of bribery and insider trading, but subsequent evidence make his denials very difficult to believe. A few years after Milken sentencing. Patricia Ostrander was convicted of accepting bribes from milking, but due to his plea deal, prosecutors were barred from charging Milken as a co-conspirator of his 10-year prison sentence. Milken only ended up serving 22 months Again, there's no Honor Amongst Thieves Just like how Boski obtained a lenient sentence by snitching on Milgen Milken Wasted little time in throwing his former friends and colleagues under the bus as well by agreeing to testify against his former Drexel colleagues.

Milken secured an early release foreign to this day Michael Milken credits himself with greatly benefiting the American economy by expanding the market for Junk bonds. Smaller companies without enough credit history to get traditional bank loans were finally able to access Capital which they used to expand their operations and hire more workers. While this is true to some extent, the junk bond boom was a double-edged sword. Many of the junk bonds that Drexel sold were issued by companies with questionable economic viability.

Following a wave of deregulation, small Banks and Trust companies started investing heavily in junk Bonds in an effort to earn a higher yield. Most of these junk Bonds were originated by Drexel. Under the leadership of Milgen. In the 1980s and 90s, there is a massive spike in junk Pawn defaults, which led in parts of the Savings and Loan crisis.

This ultimately cost taxpayers tens of billions of dollars in bailout money. Also, as a result of Milken's crimes, the SEC charged Drexel with numerous civil violations. The bank had completely failed against regulatory obligations to monitor its employees. This allowed a freewheeling culture of Insider trading and Market manipulation to Fester With milking at the center facing insurmountable legal expenses, the once proud Investment Bank filed for bankruptcy, closing its doors for the last time in 1990.

All Things Considered Michael Milken is perhaps the greatest common man in American history. He was indeed responsible for creating a new market for Junk bonds and successfully turned Drexel into one of the most powerful investment banks on Wall Street. But his success was built on pillars of Fraud and deception. When his crimes were exposed, he took the bank down with him.

The most interesting part of the Michael Milken story is how he was able to rehabilitate his Public Image. Even after paying a record-breaking 600 million dollar fine, he was still a billionaire. He turned his attention to philanthropy, contributing significantly to prostate cancer research. While his criminal conviction prohibits him from working in the Securities Industries, he has maintained his relevance in the financial World by hosting the annual Milking Conference.

This prestigious event is attended by hundreds of the world's most powerful financiers, businessmen and politicians. By serving a 22-month prison sentence and agreeing to testify against some of his co-conspirators Milken has arguably paid his debt to society and deserves a second chance. Yet it is shocking the extent to which he still idolized by the Financial Aids. For example, in 2018, he sat down for a 20-minute interview with Bloomberg television where they talked about he was a great Visionary revolutionizing the financial industry.

The interviewer did not mention his criminal convictions even once. The closest they came was near the end when the interviewer asked if he had any regrets in his remarkable career. Milken Said quo there's a few people I wish I never met and a few phone calls I wish I never returned unglow and then immediately proceeded to change the subject in 2019 Goldman Sachs Put on an even more disgraceful display when their CEO sat down with Milken for a 30 minute interview. All the questions were about what a brilliant businessman he was, as well as his more recent philanthropic work, his criminal conviction, or the fact that he ultimately bankrupted his own.

Investment Bank did not come up even once I Encourage you to watch the full interview Linked In The description below. You would have no idea that the CEO of Goldman Sachs is sitting across from a convicted criminal. The continued idolization of Michael Milken establishes a dangerous role model for future generations of investment bankers. It teaches them to end the pursuit of selfish greed.

The ends justify the means, no matter how many legal and ethical boundaries you cross. Just make a lot of money and you'll be hailed as a hero. All right guys, that wraps it up for this video. What do you think about Michael Milken Let us know in the comments section below.

As always, thank you so much for watching and we'll see you in the next one. Wall Street Millennial Signing out.