 Who are the key players?

The key player in this financial scam is Michael Milken, who was born on July 4,
1946 in Encino, California, USA. His "junk bond" business fueled many company
acquisitions in the 1980s. Milken graduated from the University of California,
Berkeley in 1968. In 1969, while studying at the Wharton School of the University of
Texas, he started working at Drexel Firestone Bank, and later merged with Burnham
& Company to form Drexel Burnham Lambert Inc., a major investment banking
company. In 1971, Milken became the head of the bond trading department of Drexel
Burnham. He saw great potential in the neglected field of "junk bonds"-namely non-
investment grade bonds, usually issued by smaller, newer companies or established
companies whose fortunes have deteriorated. The yields are higher than investment-
grade bonds, but they are also considered to be more prone to default. Therefore, large
institutional investors who provide large amounts of investment capital for US
companies consider them too risky. Milken’s research showed that the high yields of
junk bonds have an acceptable default rate, and he began to persuade more and more
institutions to buy them.
 What was the financial scam or scheme?
Beginning in 1977, Milken and Drexel began underwriting junk bonds. By 1981,
Drexel Burnham Lambert had issued more than 60% of US junk bonds. The most
important aspect is Milken's commitment to buy or sell junk bonds underwritten by
Drexel, thereby providing liquidity and security to the market. This makes junk bond
pricing more accurate and brings new investors and their funds into Milken’s junk
bond market. The junk bond boom that Milken began in the 1980s will benefit many
young companies that need investors to grow. By providing capital to young
companies due to the high cost of capital required by the risk of default, some
investors have reaped substantial returns, while innovators have seen the success of
their products. By 1984, Drexel Burnham was able to raise a lot of money by issuing
new junk bonds, and Milken used these bonds to fund new entrepreneurs and
"corporate predators" to expand their business or acquire other companies. Milken's
large and increasingly powerful junk bond network fueled the "merger frenzy" of the
1980s, during which his clients, partners and allies conducted a series of corporate
mergers, acquisitions, hostile takeovers and leveraged buyouts. By the end of the
1980s, the junk bond market had grown to 150 billion U.S. dollars, and Drexel
Burnham had become one of the leading financial companies in the United States.
Milken’s own business accounts for at least half of the company’s profits. His salary
jumped from $25,000 in 1970 to $550 million in 1987, the highest annual salary at the
time.
However, in 1986, one of Drexel's clients, Ivan Boesky, was convicted of insider
trading. He implicated Milken and Drexel Burnham Lambert in his illegal financial
transactions. Before 1986, Congress introduced about 30 bills to implement anti-
takeover laws. In order to slow down the junk bond market, the Federal Reserve
raised the margin requirements for junk bond financing, and Congress called for
restrictions on the purchase of junk bonds. In 1989, Milken was charged with 89
charges, including insider trading, securities fraud and extortion. In 1988, Milken and
 Drexel Burnham were both charged with securities fraud. Later that year, Drexel
reached a settlement with the government and agreed to pay a fine of $650 million.
Milken left the company in 1989. Without control of Milken, his network of junk
bond issuers and buyers broke down, and the bond market soon collapsed, leading to
the bankruptcy of Drexel Burnham in 1990. Milken pleaded guilty to five technical
counts of violating the securities law in the same year. He was sentenced to 10 years
in prison, fined $600 million, and permanently banned from engaging in securities
business.

 What laws were violated? Or, if the scam is really old, what current laws
would have been violated? & What was the response to the scam of government
regulators? Did it lead to any changes in the law?
At the beginning of Milken's career, he saw an opportunity to use junk bonds. He
believes that by buying bonds issued by companies with lower credit ratings, rather
than buying bonds from AAA-rated companies, investors can get high returns on a
risk-adjusted basis. At the time, the availability of such bonds was limited, and
Milken predicted that demand for this investment opportunity would soon exceed
supply. Drexel Burnham Lambert, the company where he worked, worked hard to
persuade such companies to issue more junk bonds for underwriting. The company in
question may be in its infancy or not yet established. Their low credit rating is not
necessarily the result of poor financial status, but rather a lack of extensive credit
history. This is usually the case in emerging industries. From a company's point of
view, issuing bonds is a way to potentially obtain more capital, which may not have
been obtained. Milken's efforts at Drexel Burnham are believed to have established
this market. With the development of the junk bond market, Milken sought to
maintain a dominant position in the field. Some of his efforts led him to engage in
business activities, which eventually led to his arrest and conviction for securities
fraud. A series of actions of Michael Milken violated the Securities Act of 1933 and
the Securities Exchange Act of 1934. He also violated the Insider Trading Act of
1988. Additionally, Milken used insider trading to earn a lot of money. The Milken
case prompted the federal government to pass the 1988 Insider Trading Act, which
increased penalties for insider trading.
References:
https://www.britannica.com/biography/Michael-R-Milken
https://www.investopedia.com/terms/m/michaelmilken.asp
https://www.businessinsider.com/michael-milken-biography-2012-8#michael-
milkens-impact-is-currently-felt-by-industries-spanning-from-finance-to-medicine-to-
technology-23