NYSE May Discipline Drexel, Levy Big Fine : Securities: The brokerage could be fined $25 million. CEO Frederick Joseph and other officials could also be target of action.

Drexel Burnham Lambert confirmed Friday that it may be disciplined by the New York Stock Exchange, and sources said the punishment may include a fine of up to $25 million and possible action against Chief Executive Frederick H. Joseph and other top executives.

The Big Board is said to be intent on imposing punishment even though the brokerage closed down and has been liquidating since its parent company, Drexel Burnham Lambert Group, filed for bankruptcy proceedings in February.

The stock exchange investigation is believed to relate to the wrongdoing that Drexel and its former junk bond chief, Michael Milken, have pleaded guilty to.

Sources said the amount of the fine against the firm hasn’t been finalized, and Drexel is believed to be trying to persuade exchange officials to lower the amount. Action against Joseph and others would be for failure to properly supervise employees, including Milken.

One source confirmed that several Drexel officials have been subpoenaed in recent weeks--the exchange has that power--to give testimony in the Big Board investigation. The stock exchange can punish member companies and their officials when they violate exchange rules. The exchange has been criticized by some segments of the financial press and some investors’ groups for not taking action more swiftly against Drexel.

Sharon Gamsin, a spokeswoman for the NYSE, refused to comment. She said it is the exchange’s policy never to comment on “regulatory issues” and said “we cannot confirm or deny that we are doing an investigation.”

Drexel began a long decline after it pleaded guilty last year to six felony counts and agreed to pay $650 million in financial penalties. Milken pleaded guilty to six felony counts last month.

It wasn’t immediately clear how a fine against the firm would affect the parent company’s creditors, although it almost certainly would reduce the funds available to pay them off. The brokerage itself, although it is closed, isn’t in bankruptcy proceedings.

In a prepared statement, a Drexel spokesman said: “We understand the stock exchange’s need to project an image of being a strong self-regulator. However, that should be balanced with a sense of fairness in evaluating the company’s and management’s behavior. The standard ought to be, ‘Was Drexel’s compliance as good (as) or better than other firms’ on the Street and were the systems diligently used?’ We believe they were.

“Moreover, we know the transgressions chiefly involved verbal agreements that were not disclosed to the firm and which no amount of diligence could have detected. It’s clear that there were things that went wrong, but the firm and its shareholder-employees have already paid dearly for them. Any further penalties would be added, unnecessary punishment for creditors and shareholders and could be viewed simply as piling on.”