It’s well-known that a person can make vast sums of money if they succeed in the banking world.
Colossal sums are being generated, and people who find themselves prepared to put the work in can enrich themselves.
However, banking also presents people with a sometimes overwhelming opportunity to cheat the system to make even more money for themselves.
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There are numerous examples of this over the years, which have resulted in massive scandals and long jail sentences.
“The Junk Bond King”
Michael Milken was the head of the high-yield bond department at the investment banking firm Drexel Burnham Lambert.
In the mid-1980s, he became associated with popularizing “junk” bonds.
These were bonds with a higher risk of default and other adverse credit events but would also pay higher yields to investors – High risk and high reward.
In 1987, his compensation was a massive $550 million and was more than $1 billion over four years.
He was given the nickname “The Junk Bond King,” and at its peak, the bank became the fifth-largest in the US.
The “King’s” Downfall and $600 million fine
In 1989, the bank’s success, and, in particular, Milken’s extraordinary earnings, were getting attention – and drawing suspicion.
David Rockefeller, retired chairman of the Chase Manhattan Bank, said at the time: “Such an extraordinary income inevitably raises questions as to whether there isn’t something unbalanced in the way our financial system is working.
“One has to be concerned when the norms that have been accepted over the years suddenly become so distorted.”
The feeling that it might be too good to be true was confirmed later that year when Milken was indicted on racketeering and securities fraud.
In April 1990, he admitted six felony counts of violating security laws.
He was jailed for 10 years and fined an astonishing $600 million, although he claims it was $200 million.
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In fact, as part of the plea, Milken agreed to pay $200 million in fines.
But at the same time, he agreed to a settlement with the SEC in which he paid $400 million to investors hurt by his actions.
His prison sentence was massively reduced to just two years for good behavior and cooperating to testify against his former colleagues.
He was also banned for life from the securities industry by the Securities and Exchange Commission (SEC)
The scandal led to the bank filing for bankruptcy in 1990.
At Milken’s sentencing, Judge Kimba Wood told him:
You were willing to commit only crimes that were unlikely to be detected. … When a man of your power in the financial world … repeatedly conspires to violate, and violates, securities and tax business in order to achieve more power and wealth for himself … a significant prison term is required.
Presidential pardon and charity work
In 2020 – more than 30 years on from the scandal – Milken was given a Presidential Pardon by Donald Trump.
Since leaving prison, Milken, who has survived prostate cancer, has dedicated his life to charitable causes, including research into the disease.
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