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Drexel Confirms SEC's Desire to Press for Charges

February 23, 1988|From Reuters

WASHINGTON — Drexel Burnham Lambert has confirmed for the first time that the Securities and Exchange Commission staff wants civil charges brought against the investment banker and unidentified employees for allegedly breaking securities laws.

The disclosure came in a prospectus for a planned securities offering by New America High Income Fund, a Boston-based investment company formed to invest in corporate "junk bonds." Junk bonds are high-risk, high-yield securities.

The SEC requires companies to make disclosures of "material" events in offering documents. Drexel's confirmation of the SEC's staff recommendation is contained in a section relating to potential risks associated with the securities being offered.

Earlier published reports said the SEC staff would recommend to the full commission that such charges be filed, but previously New York-based Drexel refused to deny or confirm the reports. It has maintained, however, that its own probes have revealed no wrongdoings.

Although SEC staff members have recommended that charges be brought, a final decision on whether to actually press charges has not been made by the SEC's five commissioners, Drexel said.

Injunctive Action Favored

"Based on what the staff has told us and based on what we know, we think the staff's charges are unjustified," a Drexel Burnham spokesman in Los Angeles said on Monday.

Drexel is acting as an underwriter for New America's proposed offering of stock and notes, and may be a broker in some of its transactions, but is not otherwise affiliated with the fund.

The agency staff "intends to recommend that the SEC bring a civil injunctive action against Drexel Burnham Lambert Inc. and several of its key employees relating to transactions, some of which may have involved 'high yield' bonds," according to the offering document filed Friday with government regulators.

Published reports and Wall Street sources have linked Drexel and Michael M. Milken, the head of its junk bond unit, with the insider trading scandal centering on former top arbitrager Ivan F. Boesky.

Boesky, who will start serving a three-year prison term next month, had been a client of Drexel's.

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