Drexel Seeks Dismissal of Staley Stock Lawsuit

Drexel Burnham Lambert moved Monday to dismiss a Chicago company’s lawsuit contending that Drexel interfered with a stock issue by the company in an effort to extort business from it.

In papers filed in federal court in Chicago, Drexel, an investment banking firm, denied that it sold stock in Staley Continental, an Illinois food-processing company, while Staley was trying to float a 4-million-share stock issue last November. In fact, Drexel said, it purchased Staley stock during the issue.

In a statement Monday issued by David Satterfield, a Staley vice president, the company said: “We remain confident that our position will be upheld after full discovery and a trial by jury.”

Referring to threatening statements that Staley alleged were made by Drexel executives during telephone calls to Staley management, Satterfield added: “No Drexel executive has denied the statements attributed to Drexel in our complaint.”

But one of Drexel’s attorneys in the case, Edward P. Krugman of the law firm of Cahill, Gordon & Reindel, responded Monday: “Obviously, it’s Drexel Burnham’s view that Staley is wrong in terms of what it alleged happened in the phone calls.” The firm’s dismissal motion, however, focuses largely on Drexel’s contention that it made no damaging sales of Staley stock during the November offer.

Staley’s lawsuit was filed in February, at a time when Drexel was increasingly the subject of damaging speculation over its role in fraudulent stock trades undertaken by stock speculator Ivan F. Boesky. Boesky was a leading Drexel client who in November settled federal insider trading charges and last week pleaded guilty to a felony charge related to stock manipulations that he undertook on behalf of another Drexel client.

In its lawsuit, Staley contended that Drexel’s sales so depressed the market for its stock that Staley was forced to withdraw the offering. Staley subsequently raised money through a more costly issue of preferred stock.

Staley charged that the stock sales followed a series of telephone calls to Staley executives in which Drexel investment bankers tried to interest the company in a leveraged buyout. In most such transactions, executives take their own company private by borrowing money to buy in all of its stock, generally with the aid of an investment firm like Drexel.

The Drexel people, Staley charged, made veiled threats that if Staley proceeded with its offer, the company would face a possible tender offer, or that Drexel might have to sell its own holding of Staley stock into the offer.