Drexel Probe May Reveal Even More, Shad Says
Drexel Burnham Lambert Inc. Chairman John S. R. Shad said Wednesday that the federal investigation of insider trading “may well uncover additional infractions” at the Wall Street investment banking firm.
But Shad, a former chairman of the Securities and Exchange Commission, said he believes that “the bulk of the problems are behind the firm.”
Drexel agreed at the end of last year to plead guilty to six felony counts of mail, wire and securities fraud and to pay fines of $650 million in the government’s massive probe of insider trading on Wall Street.
Shad, who spoke at the firm’s semiannual economic briefing for journalists, did not describe the possible additional infractions. But he said Drexel is aiding the Justice Department and the SEC in their investigations.
He said Drexel had hired new legal and compliance experts and said the firm’s board of directors and key executives “are committed to the highest standards” of conduct in the industry.
Shad also said Drexel has formed a high-level oversight committee including himself, former SEC Chairman Roderick Hills and Ralph Saul, a veteran securities executive. Shad was elected chairman of the parent company in April, the same time that Hills and Saul joined its board.
Drexel’s investment banking, merchant banking and high-yield bond activities remain healthy, Shad said.
Some of the operations that Drexel shed recently, including its retail brokerage arm, had been unprofitable. “The dispositions tended to improve operating profits,” Shad said.
Drexel rose to prominence during the last decade through the huge profitability of its high-yield “junk bond” department, formerly led by Michael Milken, who himself faces a 98-count indictment charging him with securities fraud and racketeering.
Drexel’s settlement of criminal charges, which excluded Milken, is contingent on its settling related civil charges with the SEC. Drexel Chief Executive Frederick Joseph said final approval of the firm’s settlement with the SEC may take several months but added that a challenge by lawyers for Michael Milken may delay it further.
Milken, who was placed on leave from the firm earlier this year after he was indicted, has pleaded not guilty to all charges and is expected to go on trial next year.
Joseph said that although the civil settlement has not been approved by the U.S. District Court in New York, the firm is acting as if its provisions are in place.
“The major impact is behind us,” Joseph said, referring to the investigation and the proposed settlement. He said the firm has had few if any defections among clients.
