Junk bond "king" Michael Milken, credited with fueling Wall Street's corporate takeover boom of the 1980s, now personifies America's change in fortunes with his 10-year sentence for securities fraud.
It was the toughest penalty imposed in cases arising from the Wall Street scandals that followed the boom.The sentence U.S. District Judge Kimba Wood levied Wednesday could be reduced if Milken cooperates fully with prosecutors, but the stiff term undercut criticism from Milken supporters who claimed his crimes were merely technical violations.
Milken had pleaded guilty to six federal felony counts and previously paid $600 million in fines and restitution.
Milken, 44, stood expressionless as the judge read the sentence. His wife, Lori, was among about 200 spectators crowding the court.
Lawyers, scholars and law enforcement officials agreed the term was longer than expected and concluded that Wood wanted to send a strong message that financial crime doesn't pay.
"The sentence is entirely justified in light of the severity of the crimes Milken committed and the risks he created for the broader U.S. financial market," Securities and Exchange Commission Chairman Richard Breeden said.
The lengthy sentence also provides a measure of vindication for the government, which had been criticized for its zealous prosecution of Milken.
They were accused of hitting Milken with an excessive 98-count indictment that included charges against his brother, Lowell, in an effort to extract a guilty plea.
"It's an indication from an impartial source that the government was right in bringing this case and prosecuting it as hard as it did and in bringing him to justice," said Bruce Baird, who was head of securities fraud in the Manhattan U.S. Attorney's Office during the early stages of the Milken prosecution.
"It's stiffer than I would have guessed, but every day of it is richly deserved," he said.
Milken is the former Drexel Burnham Lambert Inc. financier whose pioneering use of high-yield junk bonds raised billions of dollars in capital, much of it used to finance the hostile corporate takeovers that characterized an era.
He faced a maximum 28 years in prison. He already has agreed to pay $200 million in fines and place $400 million in a fund to compensate investors.
Milken was ordered to report to federal custody on March 4, 1991. He will be eligible for parole after serving at least one-third of his term, meaning he could not be released until 1994. A prison was not designated.
Milken also must perform 1,800 hours of community service during each of three years' probation. That equals nearly 35 hours a week.
Wood said she would consider reducing the prison term if the government made such a request based on Milken's future cooperation, which is required under the plea agreement.
The government has said it is continuing its investigation into lawbreaking on Wall Street, including transactions involving Milken and Drexel.
Linked to scandal by former speculator Ivan Boesky in late 1986, Milken had steadfastly denied any wrongdoing and pledged to fight his March 1989 indictment.
He changed his mind in April after months of negotiations. At sentencing, Wood indicated that his initial refusal to cooperate worked against him.
Milken worth $799 million
Michael Milken, sentenced to 10 years in prison for securities and tax violations, is no longer a billionaire. But he remains one of the country's richest people. His net worth was estimated in October by Forbes magazine at $700 million, good enough for 115th place on the register of America's 400 wealthiest people.
That's after paying $600 million in fines and restitution as part of his guilty plea to six felonies in April. Forbes also estimated that he lost $250 million from the collapse of the junk-bond market and his employer, Drexel Burnham Lambert Inc., which filed for bankruptcy this year.
At Drexel, Milken made more than $1.1 billion from 1983-87, including $550 million in 1987 alone. But he faces more than 50 civil lawsuits seeking billions of dollars in damages as a result of his wrongdoing and Drexel's collapse. He was sentenced to prison Friday.