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This post is part of a series on some of the most memorable companies that have disappeared.
Drexel Burnham Lambert (1935 - 1990) spent its last decade accumulating money and power. The key was junk bond impresario Mike Milken, who used to take the bus back and forth to classes at Wharton and came in to school before dawn with a miner's hat on his head whose bright light helped him read annual reports.
Drexel's driving force, Milken, realized the potential of our shared management professor at Wharton. That professor predicted that Milken would either make a huge amount of money or go to jail. He did both. Milken made money by selling junk bonds to takeover artists who threatened companies by buying up their shares and proposing to throw out their managers. In many cases the companies bought out the takeover artist's shares at a premium to make them go away.
Milken was feared by the business establishment, and he had a contempt for the law. So he did himself in -- eventually agreeing to pay $650 million in fines and plead nolo contendere to six felonies -- three counts of stock parking and three counts of stock manipulation. Milken went to jail from March 1991 until January 1993. Drexel hemorrhaged capital; fired 5,000 people; and eventually filed for bankruptcy in 1990.
The lesson? If you can't achieve wealth within the law, you will pay the price.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
Let us know in the comments what you remember about Drexel. And be sure to check out other Companies That Have Vanished.
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Reader Comments (Page 1 of 1)
6-06-2008 @ 11:56AM
R Curtis said...
Following his release from prison, Drexel's "junk bond king", Michael Milken, experienced and survived prostate cancer. Subsequently, he started the Prostate Cancer Foundation to help inform Americans about prostate health, prostate cancer, and treatment options.
He has , arguably, done as much as any single person to organize funding of prostate cancer research. For more information, go to www.prostatecancerfoundation.org.
6-06-2008 @ 2:05PM
mistermac said...
With Milkin involved in a charitable "foundation" I would be interested in what % of donations were going to research and what % to "Operational Expenses".Usually a skunk never loses its stripes!
6-07-2008 @ 12:09PM
B. Harrison said...
And how many Americans did Mike Milken literally rob of their life savings or retirement monies.
How much damage did this man do to literally MILLIONS of Americans . . . and it was all to satisfy his GREED and his ego. That is an awfully high price for the financial damage taht the man wrought against so many Americans.
Personally, I think that Milken should have received at least 30 to 40 years in prison at hard labor. His relatively short prison sentence obviously was not much of a deterrent to others . . . or we woould not have gotten into this current economic debacle that is based on FRAUD.
6-16-2008 @ 2:51PM
amazingracie45 said...
Mike and I were in the same high school graduating class and I remember him as smart, very involved in many school activities, and nice to all. Too bad he took his talents in the wrong direction.
6-19-2008 @ 3:28PM
Peter Hemphill said...
If I remember correctly, when Mexico was being squeezed by US banks over late payments on bond payments, Mr. Milken suggested to the President of Mexico that they hold payments on the bonds, which would cause them to lose much of their perceived value, then for Mexico to buy the bonds back at greatly reduced prices. (Guess who would be the buyer and seller of the bonds?)This saved Mexico millions of dollars and reversed the pressure back to the US banks. I thought it was poetic. Milken, thus, became a far to serious threat.
Cordially,
PH
7-07-2008 @ 2:38AM
Bonnie said...
Didn't Milken sell bonds to finance the construction of the Mirage Hotel?
7-15-2008 @ 11:48PM
L. Miller said...
I recall reading that the most antagonizing thing to Milken was that when he went to prison he had to remove his hairpiece and the whole world became aware he was bald as a cue-ball.
7-16-2008 @ 12:37AM
Frank Biscay said...
He was a big blowhard who presured all that worked for him directly or under him in another capacity. drexel bent all thier internal rules to accomodate any and all wished he wanted because of the tremendous income stream he brought into the company. i worked there from 1973 to 1989 and lost my job at a great compant because of his greed, arrogance and corruptness. He should have gotten 50 years for all the harm he caused to most of Drexel's employees. This does not include harm to his direct underlings who thought their stuff didn't think because they were his chums and lorded it over the other suppost employees. His was an egostistical bastard and he probably still is.