The Milken Case

November 27, 1990

The ten-year sentence imposed on financier Michael Milken has become as intriguing, controversial and epochal as the defendant himself. Having created, almost single-handedly, the junk-bond market of the 1980s, is Milken now destined to be the catalyst for a new battle in this decade over sentencing of big-time white-collar criminals?

When Milken faced federal Judge Kimba Wood last week, history as well as the fate of a human being was on stage. Defense attorney Arthur Liman said "history will make a judgment on his [Milken's] contribution to the progress of capital formation in this country." Prosecutor Jess Fardella said Milken's tactics "inevitably had a corrosive effect. . . that threatens the entire process of savings and capital formation." Judge Wood was not about to get into that argument, consigning to history another task -- to decide whether "most of your [Milken's] business was ** conducted lawfully."

Early assessments of Milken's rocket ride to the top of Wall Street found the young businessman positively brilliant in identifying high-yield corporate bonds as a means of accumulating investment capital and using their proceeds to take over giant companies. Current assessments point to the greed and recklessness that came to characterize the Milken phenomenon and eventually led to the collapse of the junk-bond frenzy.

In the end, however, Milken was sentenced not for the operations that made him famous but for six arcane security and tax violations on which he and his high-priced lawyers pleaded guilty. The expectation was that the defendant would get five years at most. Instead, Judge Wood ruled that because Milken's crimes were hard to detect they warrant greater punishment. That was the stick. Her carrot was that if Milken starts to cooperate with government prosecutors in nailing other errant financiers, his sentence would be reduced.

In our view, Milken and those who play fast and loose with other people's money and the financial institutions of this country deserve proper punishment once their guilt has been established. But we wonder if the intricate maneuvers engaged in by all parties to the Milken prosecution do not detract from the morality tale that should be told.

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