Credit Rating and Market Infractions (Part 1 of 5)

Credit Rating and Market Infractions

In the realm of financial market, the complexity of credit rating and market infractions often surface as impactful discussions. In this five-part series, we delve into some of these crucial aspects, beginning with a spotlight on a significant figure: Michael Robert Milken, better known as the “Junk Bond King”.

Michael Milken, a prominent American financier, made a name for himself in the 1980s for his instrumental role in shaping the high-yield bond market, often referred to as “junk bonds”. His rise to prominence was linked to his leadership at the high-yield bond department of the now-defunct firm, Drexel Burnham Lambert.

However, as the 90s unfolded, Milken’s trajectory took a different turn. He found himself facing more than 90 charges, ultimately pleading guilty to six, including participation in an insider trading scheme, fraud, and conspiracy. His actions also involved using his company to aid clients in evading taxes, regulations, and concealing money.

Milken’s reckoning came in the form of a ten-year prison sentence, a hefty fine of $600 million, and a lifetime ban from the securities industry. According to the presiding  judge  “when a person of your influence within the financial sector repeatedly conspires to breach securities and tax laws, serious punishment is essential to deter others.”

The judge  further highlighted that Milken’s offenses warranted not only punishment but also a societal removal that reflected the severity of his actions. However, it’s important to note that Milken’s charges were not linked to the damage inflicted upon the savings-and-loan industry or the subsequent recession. Rather, the focus was on ensuring that the financial market, where numerous individuals invest their savings, remain free from clandestine manipulation.

Subsequently, Milken’s sentence was eventually reduced to two years due to his cooperation in providing testimony against former colleagues and his good behavior.

Stay tuned for more insights in this series as we navigate the intriguing landscape of credit ratings and market infractions.


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