Underwriter for Boesky : Mood at Drexel Is ‘Dismay’ as Probe Shifts to Firm
It appeared to be business as usual at Drexel Burnham Lambert’s Beverly Hills office on Wednesday, except for a cluster of television and newspaper reporters peppering the company’s security director with requests to interview Michael Milken, the elusive head of Drexel’s high-yield bond operation.
Although Milken has been unreachable since federal regulators confirmed that he is the target of a Securities and Exchange Commission investigation and a New York federal grand jury inquiry into insider trading on the stock market, sources close to the company emphatically deny that Milken has resigned or been asked to resign.
“Absolute bull,” said a source close to Drexel management. “He is full at work.”
Drexel officials are quick to point out that the company itself has not been accused of any wrongdoing, although several Drexel executives, including Milken, have been subpoenaed by the SEC in connection with the scandal surrounding Ivan F. Boesky, the New York arbitrageur who paid a record $100-million penalty for illegal trading.
Major ‘Junk Bond’ Dealer
Drexel has become one of the largest sellers of so-called junk bonds--high-risk, high-yield securities used to finance takeovers and corporate restructurings.
Frederick H. Joseph, Drexel’s chief executive, on Wednesday characterized the mood at the company as one of “dismay.”
“The mood is dismay because confidence in us is impacted,” Joseph said in an interview. “Our message to our employees is, ‘Don’t stand around the water cooler gossiping about what may be happening, but sit down and get your (stock) issues done.’ ”
Despite the media uproar surrounding the federal probes, Joseph said Drexel’s high-yield bond department completed four new junk bond issues totaling $1.5 billion this week.
The underwritings include a $1-billion bond issue for Safeway Stores of Oakland on Tuesday and a $50-million issue for Instrument Systems Corp., a Jerico, N.Y.-based communications company, on Monday. On Wednesday, Drexel completed a $375-million issue for Warnaco Inc., a Bridgeport, Conn., clothing manufacturer, and announced a $100-million private placement for Revere Copper & Brass of Stamford, Conn.
Although employees are obviously distracted, they are “tenaciously” trying to work and keep up with their day-to-day responsibilities, according to one New York staff member.
A Drexel insider said the shock waves created by the insider trading scandal and the resulting chill on takeovers are a “testament to the strength of the firm,” meaning that Drexel had built itself into a major force on Wall Street. Drexel, which raised $9 billion last year, is one of the nation’s largest investment banking firms.
Meanwhile, sources close to the company expressed outrage at the apparent willingness of investigators to reveal that they had tapped Boesky’s phones and tape-recorded his conversations with Wall Street executives for the past six weeks. Videotapes of Boesky’s meetings may also exist, according to federal sources.
“I think you’ve got a witch hunt of classic proportions,” said one source. “You are back to the days of (Sen. Joe) McCarthy.”
He and others expressed dismay that Drexel was being “tried in the press.”
Times staff writer Michael A. Hiltzik, in New York, contributed to this story.
