The charitable trusts controlled by former junk-bond impresario Michael Milken, which he and his wife endowed with $250 million in 1987-88 alone, virtually stopped growing after Milken was indicted in early 1989 on federal securities charges that led to his guilty plea and current prison term.
Donations to outside causes by his family's four main trusts also slowed, state records show.
Milken did form a fifth foundation in 1989, although no financial information about it is yet available. The new entity, called The Milken Institute for Job and Capital Formation, makes grants to universities and others to research trends in economic growth.
Private tax-exempt foundations such as Milken's must file their annual federal tax returns and other documents with the state Registry of Charitable Trusts, a branch of the attorney general's office.
The most recent records available for the Milken trusts cover the fiscal year that ended either Oct. 31 or Nov. 30 of 1990, depending on the foundation. Although the trusts' data are now nearly two years old, they provide evidence of how Milken, 46, stopped adding to his trusts' assets after his indictment.
Milken, who grew up in the Valley, is serving his sentence at a federal prison in Dublin, Calif., while his wife and children continue to live in Milken's permanent residence in Encino.
In fiscal 1990, the market value of the combined assets held by the four main Milken trusts totaled $388.5 million, up a mere 2% from fiscal 1988. Also, the foundations' combined annual disbursements--in gifts, contributions and grants to outside organizations--totaled $23.2 million in fiscal 1990, down 7% from $25 million two years earlier.
The day-to-day manager of Milken's foundations, Julius Lesner, said he was too busy to discuss their current status. One of Milken's lawyers, Richard Sandler, who is also a director of the foundations, declined comment.
In any case, the slowdown in the trusts' growth was not surprising when one considers that Milken, in addition to serving jail time, ultimately paid more than $1 billion in fines, penalties and out-of-court civil settlements. His lawyers have said that Milken's fortune, once estimated at nearly $2 billion, is now about $500 million.
The decline in gifts also was not unusual given the slowdown in the foundations' asset growth. Charitable foundations typically resemble annuities--each year they parcel out only a bit of their assets in donations so that their asset base extends for years.
Regulators do require private charitable foundations to make minimum annual payouts equal to 5% of their total assets. And taken together, the $23.2 million disbursed by the four Milken foundations in fiscal 1990 amounted to 6% of their assets.
Some recipients of Milken's cash also said they've detected no major changes in his trusts' grant-giving plans, even if the trusts are no longer growing so rapidly.
The Milken trusts, like most foundations, make it clear to recipients each year "that one grant is no guarantee of future funding," said Marshall McNott, president of the Los Angeles Mission Foundation, which has received about $15,000 annually from the Milken trusts in recent years. "We haven't experienced any feedback different from that."
Earlier, state records showed that Milken and his wife, Lori, made their huge contributions to the foundations in 1987-88 at a time when Michael Milken was the kingpin of junk bonds, those high-risk, high-yield debt securities made famous during the 1980s by Milken while he worked in the Beverly Hills office of his employer Drexel Burnham Lambert Inc.
The Milkens' contributions also came as Wall Street's insider-trading scandal was nearing ever closer to Milken, although a Milken spokesman at the time denied that there was any connection between Milken's growing largess and the widening scandal.
Milken was indicted in March, 1989, on a variety of federal charges including alleged insider trading. In April, 1990, facing an even broader indictment by a grand jury, Milken agreed to plead guilty to six felonies that were related to securities fraud but not insider trading. Seven months later he was sentenced to 10 years in prison.
(In early August, a federal judge reduced his sentence, citing his cooperation with authorities. U. S. District Judge Kimba Wood said Milken is now eligible for parole after serving 24 months--meaning he probably will leave jail next March. Her original order said Milken had to serve 36 to 40 months before becoming eligible for parole.)
Moreover, Milken in 1990 paid $200 million in criminal penalties and $400 million in a Securities and Exchange Commission settlement. And early this year, he paid an additional $500 million to settle hundreds of civil lawsuits brought against him by investors.