The New York Stock Exchange asked a federal bankruptcy judge Tuesday for permission to begin disciplinary proceedings against Drexel Burnham Lambert Inc. that could lead to fines of up to $50 million.
Attorneys for Drexel and its creditors committees opposed the move on the ground that the firm already has been severely penalized. They said the additional fine would hurt creditors and shareholders.
Drexel, whose parent company sought Chapter 11 bankruptcy court protection in February, has agreed to pay penalties of $650 million to the government to settle securities fraud charges. The NYSE penalty would involve the same violations as in Drexel's September, 1989, guilty plea in federal court.
The NYSE has had disciplinary action against Drexel pending for months but cannot take any action until receiving clearance from U.S. Bankruptcy Judge Howard C. Buschman III.
"We believe it is simply inappropriate under the existing circumstances of where Drexel is," Drexel attorney Richard Krasnow said. "It has already been subject under the guilty plea . . . to pay $650 million."
He said Drexel believed that the NYSE could have levied a maximum $100,000 fine for the violations at the time they occurred, from early 1984 to 1986. But the exchange later lifted the cap and is seeking to punish Drexel according to the time of settlement, Krasnow said.
It appears that the NYSE may seek to apply its proposed fine of $25 million against both the parent company and its brokerage subsidiary for a total of $50 million, the largest in exchange history. The previous high was $400,000 in 1985 against now-defunct E. F. Hutton & Co., which pleaded guilty in a check-kiting scheme.
At Tuesday's hearing, Michael Levin, an attorney for the NYSE, also said the Big Board is continuing its investigation of Drexel officials.