Drexel Chief Defends Selling ‘Insider’ Bonds to Employees

Drexel Burnham Lambert Inc. chief executive Frederick H. Joseph today defended his firm’s practice of allowing employees to purchase “insider” bonds that have been denied to clients.

Joseph told the investigations subcommittee of the House Energy and Commerce Committee that the firm used the same criteria for deciding how many bonds employees would be able to purchase as it did for its other customers.

He said that because the price of bonds is determined by the market as a whole for bonds of similar price and quality, purchases of an issue by Drexel employees would not drive up the price of that issue.

Members of the committee, however, said Drexel’s actions appear to violate regulations of the Securities and Exchange Commission and the National Assn. of Securities Dealers. They pointed to large profits made by the employee partnerships by holding the bonds for a short time and reselling them.