In the 1980s, "junk-bond king" Michael Milken was made the symbol of the "greed decade" and imprisoned. Now the Milken affair has received the careful attention of a distinguished legal scholar. In his just published book, Payback: The Conspiracy to Destroy Michael Milken and His Financial Revolution, University of Chicago law professor Daniel Fischel concludes that the only party to engage in wrongdoing was the U.S. government, which wrongly persecuted Milken.
Milken was a victim of his success. His financing strategy, which focused on future performance rather than past results, enabled upstart companies and those with weak credit histories to go through reorganizations that made them major players. Although Milken himself did not organize hostile takeovers, junk bonds made them possible, thus exposing the underperforming corporate Establishment to pink slips. Corporate fear and hatred, together with Wall Street's envy of the tremendous profitability of Drexel Burnham Lambert's high-yield bond division, created a lynch mob.
CORPORATE REWARDS. As Fischel puts it: "The Establishment losers in the marketplace, desperate for revenge and to restore their lost positions of dominance, turned to the government for help." This opened up opportunities for "ambitious but unscrupulous government lawyers like Rudy Giuliani." Using the press to create a false picture of wrongdoing, U.S. Attorney Rudolph W. Giuliani brought the full power of the government against the target of the corporate and Wall Street ire. Professor Fischel notes that Giuliani was rewarded, in turn, with Establishment financing for his subsequent New York mayoral campaigns.
Fischel writes that there is no evidence that Milken committed any crimes or "engaged in any conduct that had ever before been considered criminal." The case was based on a sudden criminalization of routine trading practices and technical regulatory violations.
Milken contributed to his own demise by accepting legal advice to extricate himself from lengthy and expensive legal proceedings with a plea bargain. This proved to be a strategic mistake, for two reasons: The sentencing judge, Kimba Wood, handed him a stiff prison term for technical infractions that had, in the past, never carried any time behind bars, and by "copping a plea," Milken cast himself in the role of a guilty party.
The pressures on Milken to make a deal were phenomenal. The media were willing accomplices in the pursuit of Milken. In addition, Milken faced a RICO freeze of his assets, the hounding of family members, and a threatened indictment of his brother, Lowell. "A brother for a brother," as then Attorney General Richard L. Thornburgh structured the deal.
CAREER BOOST. Fischel says we have much to learn from the persecution of Michael Milken. The key lesson is "the need to be vigilant to guard against the arbitrary exercise of power by the government against those who are unpopular because they threaten the economic Establishment. We need to be particularly suspicious about the rhetoric of greed. Powerful interest groups and their allies in the government use the rhetoric of greed to discredit and delegitimize the success of others. The more successful the effort, the easier it is for the government to regulate the group out of business or, in the extreme cases that took place back in the 1980s, put them in jail."
The other important lesson is that prosecutors use their offices to serve their careers rather than justice. Fischel says that "Rudy Giuliani's win-at-any-cost mentality, and his police-state tactics, were as far removed from the pursuit of justice as is imaginable. Regrettably, Giuliani's election as Mayor of New York will only encourage others to try and follow in his footsteps."
Fischel's account of government misbehavior is finding resonance in current congressional hearings on Whitewatergate, Waco, and in FBI shakeups following the bureau's excessive use of force against the Weaver family in Idaho in 1992. Law enforcement works best when it is constrained by a commitment to justice. Civil libertarians were ahead of law-and-order conservatives in realizing that justice may play second fiddle to ambition in the public, as well as private, sector.
The necessary law enforcement offices of society are in ever present danger of becoming ramps for personal careers. The function of prosecution, said Supreme Court Justice George Sutherland in 1935, is the impartial service of justice. If law enforcement is reinvigorated by this ethic, the country will be better off.