Real Life Gordon Gecko Now Runs a Think Tank and Has Influence in Washington


Milken's Influence over the Trump administration changed rules regarding development in "opportunity zones" in his favor

In the 1980s, Michael Milken was known as a hard-nose financier. Only years later he was charged with playing a central role in a vast insider-trading scheme and went to prison for violating federal securities and tax laws. He was banned from the securities industry and fined $600 million as part of his 1990 felony conviction. Mr. Milken has spent the intervening decades trying to rehabilitate his reputation through an influential nonprofit think tank, the Milken Institute, devoted to initiatives “that advance prosperity.”

One initiative the Milken Institute really supports is the new federal tax break that was intended to coax wealthy investors to plow money into distressed communities known as “opportunity zones.” The institute’s leaders have helped push senior officials in the Trump administration to make the tax incentive more generous, even though it is under fire for being slanted toward the wealthy.

The opportunity zone initiative allows investors to delay or avoid taxes on capital gains by putting money in projects or companies in more than 8,700 federally designated opportunity zones. Mr. Trump has boasted that it will revitalize downtrodden neighborhoods.

Mr. Milken, it turns out, is in a position to personally gain from some of the changes that his institute has urged the Trump administration to enact. In one case, the Treasury secretary, Steven Mnuchin, directly intervened in a way that benefited Mr. Milken, his longtime friend. In addition to the favorable tax-policy changes, some of Mr. Trump’s closest advisers, including Mr. Mnuchin, Jared Kushner and Rudolph W. Giuliani have pushed for a pardon for Mr. Milken, or supported that effort.

The former “junk bond king” has investments in at least two major real estate projects inside federally designated opportunity zones in Nevada.

One of those developments, inside an industrial park, is a nearly 700-acre site in which Mr. Milken is a major investor. Last year, after pressure from Mr. Milken’s business partner and other landowners, the Treasury Department ignored its own guidelines on how to select opportunity zones and made the area eligible for the tax break, according to people involved in the discussions and records reviewed by The Times.

The unusual decision was made at the personal instruction of Mr. Mnuchin, according to internal Treasury Department emails. It came shortly after he had spent time with Mr. Milken at an event his institute hosted.

“People were troubled,” said Annie Donovan, who previously ran the Treasury office in charge of designating areas as opportunity zones. She and two former colleagues were upset that the Treasury secretary was intervening to bend rules, though they said they didn’t realize at the time that Mr. Mnuchin’s friend stood to profit. The agency’s employees, Ms. Donovan said, “were put in a position where they had to compromise the integrity of the process.”

Mr. Milken and his institute have courted influence,staffing former federal officials. His family recently spent more than $85 million to buy three buildings opposite the White House and the Treasury Department, which he is transforming into his institute’s new Washington offices.

The most public display of his renewed stature comes each spring in Los Angeles when Mr. Milken presides over a glitzy gathering at the Beverly Hilton (same venue where his famed Predators’ Balls took place).

The Milken Institute’s annual conference attracts thousands of the world’s most powerful people in government, finance, medicine, and Hollywood. Recent guests have included Leon Black, the chairman of Apollo Global Management; David M. Solomon, the chief executive of Goldman Sachs; Eric Schmidt, the former chief executive of Google; and the New England Patriots quarterback Tom Brady.

Mr. Milken is the power broker at the center of the action. Onstage, he interviews famous guests. In private, he organizes exclusive dinners. Some have called the event the Davos of North America. Coveted speaking roles have gone to Ivanka Trump and her husband, Mr. Kushner, giving them access to an elite audience.

At last year’s event in Beverly Hills, attendees included Commerce Secretary Wilbur Ross and Mr. Mnuchin. The Treasury secretary was accompanied by several senior aides, including Daniel Kowalski, who is overseeing the department’s drafting of the opportunity zone rules.

Mr. Kowalski, who has spent months drumming up support across the country for opportunity zones, is well acquainted with the Milken Institute.

“Helping to shape the rules of the road” is how the Milken Institute describes its work on opportunity zones.

The institute “is incredibly active,” Mr. Kowalski said in an interview. He said he thought he had discussed opportunity zones with Mr. Milken, although he said he could not specifically recall. He disputed that Mr. Milken or his institute exerted any special influence over the Treasury Department.

Among the Milken Institute’s proposals was for the Treasury to give investors a generous amount of time to build on opportunity zone land and to reduce the amount that investors had to spend upgrading properties to be eligible for the tax break. Those changes would make it easier for investors to reap the benefits.

The institute also asked the Treasury a question that would clarify if investors who owned land in opportunity zones before the tax law was passed were eligible to receive the benefits. The Treasury ruled that such investments were permissible, a controversial decision since the purpose of the opportunity zone initiative was to spur new investments, not reward existing projects.

Mr. Milken’s spokesman, Mr. Moore, said Mr. Milken “never attended any meeting focused on opportunity zone regulations with any federal agency, nor did he consult with any institute representatives who may have interacted with any agency.” The Times reports that Milken did discuss opportunity zones and in 2018 Mr. Mnuchin and Mr. Milken attended a small, private event, sponsored by the institute, to discuss opportunity zones.

Just as that lobbying intensified in the spring of 2018, Mr. Milken opened his institute’s annual conference in Beverly Hills.

Mr. Mnuchin was a featured guest. “It’s great to be here with you and all my L.A. friends,” the Treasury secretary said in an onstage interview on April 30.

That afternoon, the institute organized an invitation-only meeting with Mr. Mnuchin and his staff to discuss opportunity zones. Other listed attendees included Sean Parker, the former Facebook president and an early advocate of opportunity zones, and Raymond J. McGuire, a top Citigroup executive. Mr. Betru was the moderator.

Within days, the Treasury Department had shifted its position and was now willing to let the state nominate the area around the Nevada industrial park as an opportunity zone (an area they previously found unfit).

Mr. Mnuchin told Mr. Kowalski to inform other Treasury officials that they should accept Storey County’s nomination, according to email records reviewed by The Times.

Mr. Mnuchin spoke on the phone on May 8 with Mr. Sandoval. Forty-five minutes later, Mr. Sandoval formally nominated the site to be part of an opportunity zone, email records, including documents from Nevada, show. And the decision was soon officially blessed by the Treasury Department. (While the Treasury’s reversal has been reported, Mr. Milken’s connection has not been previously disclosed.)

“Failure to apply the designation standards equally across the board will call into question the legitimacy of the process by which the designations were made,” an unnamed I.R.S. employee wrote in an internal memo in May 2018. It added that the appearance of “arbitrary” Treasury standards risked “opening the door for accusations that the determination process was influenced by political considerations or bias.”

“Any such controversy would in turn taint the opportunity zones and potentially chill or cloud the incentive for investors to invest in the opportunity zones,” the memo said.

In an interview this month at an event co-sponsored by the Milken Institute in Jackson, Miss., Mr. Kowalski would not comment on whether Mr. Mnuchin had been the driving force behind the Treasury’s reversal. “I can certainly say he was apprised of the situation,” Mr. Kowalski said.

Spokesmen for Mr. Milken and Mr. Mnuchin said the two men had never discussed the Storey County issue. Mr. Mnuchin’s spokesman, Devin O’Malley, said Mr. Mnuchin “had no knowledge of Milken’s investments in Nevada.”

In August 2018, Mr. Mnuchin and Mr. Milken met again at a small conference hosted by the Milken Institute to discuss opportunity zones. The event took place at the Hamptons home of the real estate developer Richard LeFrak, a friend of and donor to Mr. Trump, according to the event’s agenda.

A handout from the event, which was later posted online, showed a map of all 8,764 opportunity zones in the United States, but focused on the virtues of just one specific area: Reno. The handout promoted the city as a “hub to the western United States.”

The handout did not mention that Mr. Milken was a major investor in two projects in opportunity zones in that area: the tech incubator in the industrial park and a housing, hotel and retail development on the site of an old shopping mall in Reno.

Three months later, the Treasury Department heeded the institute’s request and clarified that investors could receive the opportunity zone tax benefits by simply leasing properties to themselves. As a result, investors who had long owned land inside opportunity zones were now eligible for the tax break.

In a separate round of rule changes, Treasury agreed to loosen rules governing how quickly developers had to start work on opportunity zone projects and how much money they had to spend — both revisions that the Milken Institute, among many others, had sought.

“Anybody who owned property in the zone prior to 2018 would have been out of luck until these rules,” said Michelle Layser, a tax law professor at the University of Illinois College of Law. “This really opens the door.”

Mr. Moore, the spokesman for Mr. Milken, denied that he received special treatment.

“Your insinuation that Mike has reaped personal financial benefits from Milken Institute programs is outrageous,” he said. “It’s clear that you are less interested in the objective truth than in assigning to Mike Milken sinister motives that simply do not exist.”

Mr. Moore said that Mr. Milken hadn’t hidden the fact that he had investments in the Nevada opportunity zones. He said Mr. Milken had described them at the Hamptons event that Mr. Mnuchin attended. “There was nothing secretive about it,” he said.

Mr. Kowalski said he hadn’t been aware that Mr. Milken was an investor in the Nevada projects at the same time that his institute was seeking to change the rules governing opportunity zones.

Was he surprised? Mr. Kowalski paused. “Nothing surprises me anymore,” he said.

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Economics, Finance and Investing