NYSE Punishes Ex-Drexel Chief Executive : Securities: Frederick H. Joseph allegedly failed to rein in Michael Milken’s high-yield bond department.

The New York Stock Exchange announced disciplinary action Wednesday against Frederick H. Joseph, former chief executive of Drexel Burnham Lambert, including a censure and a two-year ban on serving as a supervisor or manager at any stock exchange member firm.

The sanctions mark the first disciplinary action against Joseph, 54, who presided over Drexel during the heyday of Michael Milken’s junk bond department as well as during the firm’s collapse following criminal and civil prosecution for securities fraud.

Joseph agreed to the sanctions in a settlement with the Big Board, without admitting or denying guilt. In a decision dated Oct. 25 but not released until Wednesday, a hearing panel found that Joseph failed to take steps to ensure that Milken’s Beverly Hills-based high-yield bond department obeyed securities laws.

Drexel spokesman Steven Anreder said Joseph resigned earlier this month as vice chairman and a director of the firm, which is being reorganized under Chapter 11 bankruptcy proceedings. Joseph currently is a consultant to Drexel.

“These penalties are the most severe ever imposed by the NYSE solely for an executive’s failure to reasonably discharge his duties and responsibilities to supervise and control the affairs of his member organization,” the exchange said.

Joseph wasn’t available to be interviewed. In a written statement, he said, “As chief executive officer, I bore ultimate responsibility for the improper actions of a few Drexel employees, even though their activities were essentially undetectable. In that context, I believe today’s agreement is an appropriate resolution to a difficult issue, one that I can now put behind me, so that I can go forward with my career.”

Among other improprieties, the NYSE hearing panel found that Joseph failed to station compliance officers in Beverly Hills, failed to establish a clear chain of command for supervising Milken’s department and failed to require independent reviews of the numerous private partnerships Milken set up at Drexel for the benefit of himself, family members and selected employees.

Former Drexel executives have said that Milken and his entourage of junk bond traders and salesman contributed such an enormous portion of Drexel’s earnings in the 1980s that the firm’s headquarters in New York felt it could do little to exercise authority over him.

Milken is serving a 10-year prison term after pleading guilty to six felony counts related to securities fraud. In 1989, Drexel itself pleaded guilty to six felony counts and agreed to pay $650 million in fines and penalties.

Joseph played a key role in negotiating the firm’s settlement of criminal charges, as well as civil charges brought by the Securities and Exchange Commission.

Although there have been no allegations that Joseph knew of or participated in the illegal activity at Drexel, some law professors and others criticized the SEC settlement at the time for not including disciplinary action against Joseph for his failure to adequately supervise the firm.

The NYSE has a disciplinary action pending against the firm, although it remains in limbo because of Drexel’s bankruptcy proceedings.