This week, President Donald Trump pardoned and gave clemency to eight people convicted of white-collar crimes. Among them was former financier Michael Milken, the “junk bond king” who helped usher in an era of hostile takeovers with his infectious enthusiasm for low-rated securities.

In a statement, White House Press Secretary Stephanie Grisham hailed Milken as “one of America’s greatest financiers,” an innovator who was indicted just when his star burned the brightest.

“In 1989, at the height of his finance career, Mr. Milken was charged in an indictment alleging that some of his innovative financing mechanisms were in fact criminal schemes,” Grisham said.

But Milken’s charges, for which he served less than two years in prison, weren’t due solely to his work with junk bonds. Milken was indicted on insider trading charges that were dropped after he agreed to plead guilty to lesser crimes.

The junk bond market’s rise and fall

What is a junk bond?

Bonds are basically loans to a company or government agency. Companies can issue bonds and sell them to raise cash to expand or start new ventures. After that, they owe their bondholders interest on the loans.

Junk bonds are also called high-yield bonds, because they have higher interest rates than bonds with better credit ratings. But their low credit ratings make junk bonds risky, hence the name – junk.

Companies may issue junk bonds if they’re struggling financially. But because they’re struggling, they could default on the bonds, rendering them worthless. If they succeed, they reward bondholders with a high-interest payday.

What was Milken’s role in the junk bond market?

Milken is credited with driving the widespread use of junk bonds, which played a major role in the corporate takeover boom of the 1980s and a later string of defaults and bankruptcies.

On Wall Street, Milken received a reputation as a California outsider, a legendary financial innovator, and later, as a martyr for his jail sentence. Elsewhere, he became a symbol of corporate greed.

Junk bonds had no prestige prior to Milken’s efforts to convince investors of their potential. The industry dubbed them “fallen angels,” because their credit ratings had fallen from previous heights.

At investment bank Drexel Burnham Lambert, Milken developed the firm’s junk bond department into a lucrative, heavy-hitting operation that created a $200 billion market.

The field enriched many, including Milken. Before his indictment, he was the highest paid financier in history, earning more than $1.1 billion through his work at Drexel.

Under Milken’s leadership, Drexel dominated a niche market by underwriting and selling junk bonds that their competitors wouldn’t touch. In the mid 1980s, companies started using junk bonds to finance hostile takeovers and a wide range of businesses, including casinos.

What were Milken’s alleged crimes and how did his case end?

While settling his own insider trading charges, former stock trader Ivan Boesky provided evidence on Milken in exchange for leniency.

In a clear conflict of interest, Milken had a stake in one of Boesky’s firms and often told him what to invest in. Boesky did similar favors for Milken that impacted the stock market and the outcome of hostile takeovers.

Milken was indicted on 98 counts of racketeering and other crimes, making it the biggest criminal case in Wall Street history at the time.

In the wake of his indictment, Milken resigned from Drexel – a move that damaged an already troubled junk bond market.

In 1990, Milken pleaded guilty to just six of his charges, including securities fraud and mail fraud. Milken was ordered to pay a $600 million fine – then the largest fine ever owed by an individual.

He served less than two years of a 10-year sentence before his release in 1993. Milken has since gained a reputation as a dedicated philanthropist for causes like cancer research.

The Securities and Exchange Commission barred Milken from the securities industry, but he broke the ban. In 1998, he paid a $47 million fine to settle charges that he had advised companies during investment deals.

What happened with the junk bond field?

By the 1990s, corporations were spending a record-breaking amount on interest payments. Even some profitable companies struggled to make interest payments that could cost tens of millions of dollars a month.

At the same time, there was a recession. Defaults on junk bonds started going through the roof, forcing the high-yield securities market to collapse.

By this time, pension funds, mutual funds and insurance companies had invested heavily in junk bonds, as had savings and loans institutions. The junk bond collapse led to a savings and loans crisis and a $150 billion federal bailout.

After Milken’s resignation, Drexel filed for bankruptcy. The firm also pleaded guilty to six charges, admitted to stock market manipulation and agreed to pay a $650 million fine.

Junk bonds are still in use today.

Factchecking Grisham’s comments

Did Milken plead guilty so that prosecutors would drop charges against his brother?

That’s what Grisham said, and while it’s impossible to know if that was the sole reason for his plea, we do know that he had other incentives.

As part of his plea agreement, prosecutors dropped their case against Milken’s brother, Lowell, who also worked in Drexel’s junk bond department.

Milken’s agreement had other perks, though. Prosecutors dropped most of his charges, including the ones that could have carried the harshest punishment. They also halted an ongoing investigation into him and agreed not to file any additional charges.

Did Milken’s work lead to the creation and transformation of multiple industries?

Grisham said: “By enabling smaller players to access the financing they needed to compete, Mr. Milken’s efforts helped create entire industries, such as wireless communications and cable television, and transformed others, like home building.”

The industries for cable TV and wireless communications got their starts decades before Milken’s foray into junk bonds. It’s also misleading to suggest Milken’s work “transformed” other industries, unless you’re strictly talking about the trend of corporations taking on massive amounts of debt to expand or raid other businesses.

But it’s accurate that the cable, communications and construction realms benefited from using junk bonds.

MCI Communications, the long-distance phone company that was acquired by Verizon, and Turner Broadcasting, now part of AT&T, both grew after issuing junk bonds.

Gary Winnick, who pushed for Milken’s pardon, was an executive in Drexel’s junk bond department. He went on to found telecom company Global Crossing, which filed for bankruptcy in 2002. About 10 years later, Global Crossing was acquired by Level 3 Communications, which also took on the company’s debt of $1.1 billion.

Toll Brothers, a luxury home builder based in Pennsylvania, is another Drexel client that raised millions through junk bonds.

Did Milken improve access to capital for women and minorities?

Grisham said that “Milken’s work also democratized corporate finance by providing women and minorities access to capital that would have been unavailable to them otherwise.”

Until the junk bond boom, bonds were only issued by large corporations with strong track records. Junk bonds allowed smaller, less established companies to issue bonds with imperfect credit ratings.

Some women and people of color took advantage of junk bonds to propel their operations forward.

For instance, Beatrice International Foods was briefly one of the largest black-owned business after African-American attorney Reginald F. Lewis used Drexel junk bonds to buy out the company. A group made up of former Drexel employees sued Beatrice, arguing Lewis had received excessive compensation. After the purchase, Beatrice was slowly dismantled and sold off.

Maryland-based minority-owned venture capital firm Georgetown Partners, which is focused on real estate, also worked with Drexel to raise millions of dollars that went toward buyouts and investments.

However, Milken did not singlehandedly “democratize” access to capital, an area still dominated by inequality. During and after Milken’s work, women and minority-owned businesses have raised less capital than companies run by white men.

Who else pushed for Milken’s pardon?

Casino magnate Sheldon Adelson and billionaire Nelson Peltz, both Trump donors, supported Milken’s pardon.

Peltz made millions of dollars by using Drexel bonds to buy a can company that was six times bigger than his own. Peltz hosted an exclusive fundraising event for Trump the weekend before Milken’s pardon. The fundraiser was the president’s most expensive since taking office.

Media giant Rupert Murdoch also cheered on Milken’s pardon.

And Rudy Giuliani, Trump’s attorney who was deeply connected to the events that led to the president’s impeachment charges last year, was among Milken’s supporters.

As a former U.S. attorney, Giuliani oversaw Milken’s prosecution, but the pair later forged an unlikely friendship. Giuliani said on Twitter that he asked Trump and three other presidents to pardon Milken.

Giuliani also lobbied for Trump’s pardon of Bernard Kerik, a former New York police commissioner who was convicted of tax fraud and making false statements.

Does Trump have experience with junk bonds?

Yes. He issued $675 million in junk bonds to complete construction of his Taj Mahal casino in Atlantic City. The casino went bankrupt about a year after it opened.

Contact Big If True editor Mollie Bryant at 405-990-0988 or bryant@bigiftrue.org. Follow her on Facebook and Twitter.

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