Drexel Sought Help From 9 in Congress to Pressure SEC
Drexel Burnham Lambert Inc., currently facing federal charges of securities fraud, recently enlisted nine members of Congress from California--at least seven of whom have received campaign contributions or honorariums from Drexel--to bring pressure on the Securities and Exchange Commission to lighten the terms of a proposed settlement of the case.
Los Angeles Mayor Tom Bradley also played a key role in persuading the California congressional delegation to intervene on behalf of Drexel.
The lobbying effort by Bradley and Drexel’s representatives in Washington resulted in three similarly worded letters from members of Congress to SEC Chairman David R. Ruder, demanding that the agency abandon efforts to force Drexel to move its high-yield bond department from Beverly Hills to the firm’s headquarters in New York City.
California’s two senators, Democrat Alan Cranston and Republican Pete Wilson, each wrote letters on Drexel’s behalf, and Rep. Henry A. Waxman (D-Los Angeles) wrote a third letter, which was signed by six other Los Angeles-area congressmen.
Cultivated Friends
The story of how Drexel prevailed upon these members of Congress to weigh in on the company’s side in its sensitive negotiations with the SEC is a case study in effective lobbying by a firm that has carefully cultivated friends on Capitol Hill in recent years. It also exemplifies why critics are pressing for a ban on direct corporate gifts to members of Congress in the form of honorariums.
In recent years, Drexel has been a generous source of honorariums--speaking and appearance fees--as well as campaign contributions for members of Congress. The firm also employs one of Washington’s highest powered lobbying outfits, the law firm headed by well-known Democrat Robert S. Strauss.
Cranston, Wilson, Waxman and four of the other letter signers--Reps. Howard L. Berman (D-Panorama City), Mel Levine (D-Santa Monica), David Dreier (R-La Verne) and Carlos J. Moorhead (R-Glendale)--have received thousands of dollars from Drexel and its political action committee in the last three years. Two signers of Waxman’s letter, Reps. Julian C. Dixon (D-Los Angeles) and Augustus F. Hawkins (D-Los Angeles), list no Drexel contributions on recent financial disclosure reports.
According to sources, the initial Drexel contacts were made with Cranston, Wilson and Waxman by representatives of Strauss’ law firm, Aiken, Gump, Strauss, Hauer & Feld.
The representatives asked the three members of Congress to express their objections to the SEC’s demand that Drexel move its so-called “junk bond” operation into the firm’s New York headquarters. The junk bond operation has been headed by Michael Milken, who is a key target of the federal fraud investigation.
Moving the junk bond department to New York is known to be a key issue in the current talks between the firm and SEC attorneys. The SEC contends that the New York-based company cannot properly supervise the Beverly Hills department, where many of the most serious securities abuses allegedly occurred.
Drexel must reach agreement with the SEC to fulfill a plea-bargain reached earlier with outgoing Manhattan U.S. Atty. Rudolph W. Guiliani in the case. On Dec. 21, Drexel tentatively agreed to plead guilty to six criminal counts of securities fraud and pay $650 million in criminal penalties to avoid being indicted on more serious racketeering charges.
In addition to the congressional contacts, representatives of the company, according to Drexel spokesman Steve Anreder, solicited help from Bradley’s office in Los Angeles as well as from several unidentified Los Angeles County officials.
Bradley then telephoned House Assistant Majority Leader Tony Coelho (D-Merced) in Washington, asking for his help in arranging what one Coelho aide described as “some kind of coordinated effort” to persuade the SEC to drop its demand.
Although Coelho himself declined to write a letter to the SEC, according to his aide, the leading Democratic congressman quickly enlisted Cranston’s help. Coelho and Cranston discussed the matter Jan. 20 while both men sat on the podium for the inauguration of President Bush, and Cranston agreed to write a letter to the SEC.
At first, Cranston and Wilson tried to draft a joint letter. But negotiations between the two senators broke down, according to Wilson, when Cranston objected to one phrase relating to the prosecution proposed by the Republican senator. Wilson’s letter says that “those who break the law, of course, should be convicted and made to pay for their actions,” but there is no similar thought expressed in Cranston’s version.
Waxman failed in his effort to get all members of Congress from the Los Angeles area to sign his letter, according to a spokesman. Conspicuous by its absence was the name of Rep. Anthony C. Beilenson (D-Los Angeles), who represents the Beverly Hills neighborhood where Drexel’s high-yield bond department is located.
A spokesman for Waxman said that his letter was written in direct response to a request from Drexel, but Cranston said in an interview that he was contacted only by Coelho. A Bradley spokeswoman, Lydia Shane, denied that the mayor’s decision to call Coelho was anything but spontaneous, even though Drexel contends its representatives contacted his office. Asked if the mayor was contacted by Drexel, she replied: “No.”
As for Wilson, he acknowledged in an interview that he was contacted by a Drexel representative, but the GOP senator sought to leave the impression that it was a low-level employee of the Beverly Hills office--not a company lobbyist. He described the person who called him as “a constituent, a Drexel employee,” and added: “We’re talking about clerks and stenographers here.”
Although the three letters contain many similar phrases, Drexel spokesman Anreder denied that his firm coordinated the letter-writing effort in any way. In general, all of the letters argue that Los Angeles and California would suffer a serious economic loss if Drexel were forced to move its high-yield bond department to New York City.
The letters noted that Drexel employs 317 people in Beverly Hills and 1,000 people in California, and that the company has raised over $12.5 billion for California non-investment grade companies between 1980 and 1987.
“We disagree in the strongest possible terms with the myopic view that our major financial institutions must operate in New York,” Waxman wrote. “Requiring Drexel to close its Beverly Hills office would set a dangerous precedent. It would undermine the growth of financial centers throughout this country and restrict access to U.S. capital markets by companies operating in regions other than the East Coast.”
The SEC has not responded publicly or to the members of Congress.
Honorariums Listed
Cranston, a leading member of the Senate Banking Committee, received $2,000 in honorariums from Drexel in 1987--the last year for which honorarium records are available--and $4,000 in Drexel PAC campaign contributions when he sought reelection in 1986. Wilson received a $2,000 contribution from a Drexel PAC to his reelection campaign in 1988. Waxman accepted $5,000 in honorariums and $500 in campaign contributions from Drexel in 1987.
Berman received a $2,000 honorarium from Drexel in 1987; Levine received a $5,000 campaign contribution from Drexel in 1986; Dreier received a $1,500 campaign contribution in 1987 and 1988, and Moorhead received $2,000 in honorariums in 1986.
