Drexel Head Says Firm Is Unaffected by Boesky Affair
The top executives of Drexel Burnham Lambert maintained Tuesday that the Ivan F. Boesky affair has had no direct impact on the investment firm’s business or on takeover deals in which it is participating.
But they did say the insider trading scandal has helped put an end to the firm’s 7-month-old plan to move into an entire new building off Wall Street and to take a nearly 50% ownership of the building. Instead, Drexel will continue to work out of its Wall Street quarters in four buildings and will lease an additional 150,000 square feet to accommodate any expansion.
The announcement came during the firm’s semiannual economic briefing for the press, which was scheduled weeks before the unfolding Boesky affair focused government attention on the aggressive investment firm. Drexel counted stock speculator Boesky among its clients.
No Expectation of Wrongdoing
The Securities and Exchange Commission announced Nov. 14 that Boesky, Wall Street’s leading speculator in takeover stocks, had settled insider trading charges by agreeing to a record penalty of $100 million, as well as a permanent bar from the U.S. securities industry and a guilty plea to a federal felony count. Since then, several Drexel executives have been subpoenaed in the case.
During Tuesday’s briefing, Drexel Chief Executive Frederick H. Joseph said the firm still has no specific reason to believe that any of its 10,000 employees “has done anything wrong.”
“We’re confident that none of our people will have to resign,” he said. But he added that the disclosures this year that Dennis B. Levine, once a highly regarded mergers specialist at Drexel, had traded stocks on confidential merger information and had sold information to Boesky left him “shell-shocked.”
“I’m learning to be not too arrogant about what could be going on among 10,000 employees,” he said.
Meanwhile, another former Drexel employee was sentenced nearby in federal court in Manhattan on Tuesday for his role in an insider trading ring unconnected with Levine or Boesky. Robert Salsbury, 27, received three years’ probation amid indications that his Drexel superiors encouraged him to seek out inside information in his job as a stock analyst.
“There are obviously much higher-ups at Drexel Burnham who should be brought to justice,” said U.S. District Judge Gerard Goettel. Steven Kaplan, the prosecutor in the case, added after the court session that Salsbury “took part in the destruction of documents at Drexel Burnham which tied the firm into insider trading.” He said a federal investigation is continuing in the matter.
Salsbury had pleaded guilty to receiving tips on impending takeovers from Michael David, a friend who worked as a lawyer at the prominent law firm of Paul, Weiss, Rifkind, Wharton & Garrison. David last week pleaded guilty to related charges.
When Salbury pleaded guilty to insider trading charges earlier this year, he had said he had passed on his advance warning of a takeover bid for Avondale Mills to his superiors at the firm. Drexel executives have denied that anyone at the firm traded on Salsbury’s information or knew he was receiving illegal tips.
But Goettel remarked Tuesday in sentencing Salsbury that the defendant’s supervisors “virtually urged him to acquire inside information and told him that is the way the game is played on Wall Street.”
At the Drexel Burnham briefing, both Joseph and Drexel Chairman Robert E. Linton said that despite the largely negative attention paid to the firm’s role in financing hostile takeovers as a result of the Boesky case, it remains at or near the top of the securities business in a number of categories. Drexel’s nearly $1.8 billion in capital leads that of any private investment firm, Joseph said, and the firm has underwritten $2.2 billion in new securities offerings in the weeks since Boesky’s SEC settlement was announced.
Although several takeover deals in which the firm was participating have collapsed since then, Joseph attributed that to coincidence. “There’s no transaction we’ve been unable to complete,” he said.
The failure last week of Revlon’s takeover offer for Gillette was “not (due) to an inability to finance on our part,” he said; similarly, Peoples Jewellers’ announcement this week that it would finance a takeover of Zale’s Jewellers with bank debt rather than Drexel-underwritten junk bonds represented “a decision that preceded the Boesky event.”
On its decision to abandon plans to move into 7 World Trade Center, Linton said the firm’s agreement with developer Larry Silverstein began to unravel when the new federal tax law removed several incentives on which Drexel’s financing plans relied.
After the Boesky case erupted, however, “it made us feel it’s not a propitious time to go through the tremendous diversions involved in creating a new headquarters for ourselves.”
