In financial history, he’s known as the “Junk Bond King.” He revolutionized the market for high-yield bonds during the 1980s, but he later ended up serving two years in prison and paying $600 million in fines after he was indicted for racketeering and securities fraud. He got greedy, broke the rules, and paid for it. Sorta.
But he is still a very wealthy man, and apparently, he is a generous philanthropist. Although, a recent investigation by the Wall Street Journal raises questions about the opportunistic timing of his philanthropic gifts, so you have to wonder—is he getting greedy and breaking the rules again?
Donating stock to a charitable organization is a great move if you have appreciated securities and a cause that you want to support. There is no tax on the gain, and you receive a deduction equal to the fair market value of the stock on the date of the gift. So what tax game could you possibly play? Well, if you just happen to give away the stock before a dramatic fall in value, you come out way ahead.
That’s exactly what Milken did in 2013 when he donated $27 million of K12 Inc. stock to charity, which then lost 38% of its value less than a month later. Coincidence? Sure, maybe. But he did the same thing back in 2003 when he donated $17 million of another company, which lost 25% of its value a little over a month later.
But Milken is not alone. In fact, the Wall Street Journal recently investigated 14,000 donations to private foundations (public charities do not have to identify their donors) and found that stock donations before a loss of 25% or more are three times as likely as donations before a gain of the same amount. Statistically, it is very doubtful that those results are random.
At the end of the day, it’s still a charitable contribution. But you have to wonder if he’s reverted to his old ways of breaking rules to come out ahead.