Word: milken
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Dates: during 1990-1999
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...after all, was more than just a tough competitor; it was viewed as a bad influence. Last year the company agreed to pay a $650 million fine and pleaded guilty to six counts of mail and securities fraud. As part of the settlement, federal prosecutors required Drexel to dump Milken, who now faces a 98-count fraud and racketeering indictment. "The era of extravagance and insanity has come to an end," says economist Pierre Rinfret, who runs a Wall Street consulting firm. "This is a breath of fresh air. Drexel got what it deserved. These guys could destroy the country...
Junk bonds were a little-known security when Milken opened Drexel's Beverly Hills office in 1978. Seated at an X-shaped trading desk, Milken first peddled junk for small and medium-size companies whose weak credit ratings kept them from issuing bonds that paid lower interest rates. When investors snapped up the junk, Milken expanded the market for his new securities. The tireless promoter argued that the risk of a junk-bond default was scarcely greater than the risk for blue-chip corporate bonds. Since junk securities paid interest rates about six percentage points higher than conventional bonds, Milken...
...1980s junk had become so popular -- and Milken so powerful -- that corporate raiders could launch a bid backed by little more than one of Milken's trademark letters stating that he was "highly confident" of lining up the necessary financing. Just for the ominous letters, Milken charged fees as high as $3.5 million. Backed by Milken, Texas oilman T. Boone Pickens attacked Gulf Oil in 1984, forcing the energy giant to merge with Chevron and earning nearly $400 million from his seven-month raid. Later Milken bankrolled Carl Icahn in a $1.2 billion takeover of TWA. Supported by Drexel...
...Milken's clout grew, financial journalists described him as the most powerful financier since J.P. Morgan. But Milken's penchant for working by his own rules and controlling every situation proved to be his downfall. Drexel's huge profits and free-wheeling methods attracted the attention of federal prosecutors who believed that, among other offenses, Milken fed inside information to a network of traders to manipulate the stocks of his target companies. Prosecutors first snared Dennis Levine, a Drexel investment banker, who pleaded guilty in 1986 to four counts of profiting from insider trading. The Government then got Levine...
Armed with Boesky's testimony, prosecutors threatened to bring racketeering charges against Drexel, which would have permitted the Government to tie up more than $2 billion of the firm's capital. Forced to the wall, Drexel agreed to pay the $650 million and give up Milken, who was indicted last March. He was originally scheduled to come to trial next month, but the Government is considering broad new charges that could delay the case...