Because of the comfort he gave New York during the 9/11 crisis, the
city’s former mayor, Rudolph Giuliani, is now widely regarded as a hero. His bravery in this emergency is indeed commendable. Still, it’s best to have a complete portrait of the man, looking at his less agreeable decrees as well.
Before becoming mayor, Giuliani first rose to fame as the district
attorney who unfairly persecuted — sorry; ”’prosecuted”’ — investment banker Michael Milken.
Throughout the eighties, Milken helped “corporate raiders” take over failing corporations, using “junk bonds.” Once the “raiders” gained control, they’d fire incompetent managers and make the organization more efficient.
This practice saved many companies from bankruptcy, but it incited
panic among inept executives.
Thus, the corporate establishment and the era’s anti-capitalist activists alike feared Milken, making them want to pulverize — even jail — him. Since “corporate raiding” was still legal then, they had to find another excuse for imprisoning him, so they accused him of violating securities regulations.
But not only were these regulations unjust, but their application to
Milken made no sense.
After relentless harassment from the media and government, Milken
couldn’t take it anymore, so he pled guilty on four counts. He consequently spent two years behind bars (it would’ve been longer, but his sentence was reduced for “good behavior”) and he’s ”’banned”’ from the securities trade ”’for life.”’
But Milken didn’t deserve that, as exhaustively demonstrated in Daniel Fischel’s book “Payback” and briefly shown in Robert Sobel’s “Dangerous Dreamers.” Let’s go over each of the four counts.
First, Milken purchased stock on behalf of the Finsbury Fund, and was legally supposed to charge the company a commission. Instead, Sobel notes, Milken “charged Finsbury a fraction of a point more on purchases, although within the market range for the security. If Milken had accepted the identical amount as a commission, no crime would have been committed.” A man spent years in confinement for ”’this”’ technicality?
Secondly, Milken assisted David Solomon in reducing his income taxes, instructing Solomon to take certain business losses in order to decrease what he’d have to pay the IRS, and then promised Solomon that he’d make up the losses later. That’s illegal, too.
Yet it’s common for people to perform certain actions, like making
charitable donations, to lessen their taxes. Milken didn’t defraud anyone — Solomon’s losses were real. And Solomon’s reducing his taxes doesn’t damage anyone’s person or property; it’s the IRS that violates ”’his”’ rights and everyone else’s by extorting money without consent.
Finally, for the other two counts, Milken was charged for “aiding and
abetting” speculator Ivan Boesky when he failed to file two statements asking for the Securities and Exchange Commission’s (SEC’s) permission to make certain stock purchases, at Milken’s request, each to help a Milken client — Victor Posner and Golden Nugget Casino, respectively.
When Posner bid for Fischbach Corporation, Milken asked Boesky to
procure its stock too, so that speculators and regulators would assume that it was Boesky and not Posner trying to take it over.
And when Golden Nugget sold off its MCA stock, Milken had Boesky
purchase MCA stock so that speculators would see it as still being in high demand and continue to buy it at high prices even as Golden Nugget dumped it, cutting the casino’s losses.
No fraud here. Boesky promised nothing; speculators just saw him
execute trades and then they made assumptions — their own responsibility.
These deals were made with the ”’assent”’ of all parties involved. No
one was forced to buy or relinquish anything; no contracts were broken. Boesky shouldn’t even have been required, in the first place, to ask for the government’s permission to commence peaceful transactions with consenting adults; that’s his ”’right.”’
Yet Giuliani charged Milken as an “”’accessory”'” to Boesky’s
“felonies” in the cases of Posner and Golden Nugget, which legally means that Boesky was the main perpetrator. But Boesky himself wasn’t charged on either count; only Milken was.
Milken was jailed for ”’helping”’ a “criminal” commit two “crimes,” while the “criminal” he helped ”’wasn’t”’ penalized for them. That’s illogical.
And, in all preceding securities cases, breaches of such regulations
only meant ”’civil”’ penalties; Milken was the first person ”’criminally”’ charged for them.
In short, Giuliani imprisoned Milken unfairly, and at all costs. Bill
Clinton, who snubbed Milken when he asked for a pardon, isn’t known for decency, … but Giuliani ”’is.”’ So the former mayor at least owes an apology to the Milken who revitalized — not imperiled — American commerce.
”’Stuart K. Hayashi is the president of the Reason Club of Honolulu and an undergraduate in Entrepreneurial Studies at Hawaii Pacific University, though his opinions do not necessarily reflect that of either institution. He can be reached at mailto:email@example.com and an index of his past editorials for HawaiiReporter.com can be seen at”’ http://reason_club.tripod.com/stuart_editorials.html
Related Articles by Stuart K. Hayashi:
“Voluntary Alternatives to Taxation”
“The Invisible Gun”