NEW YORK — Drexel Burnham Lambert Inc. pleaded guilty Monday to six felony charges stemming from the activities of its Beverly Hills high-yield junk bond unit, formally ending federal prosecutors' 3-year-old case against the pioneering investment firm.
In a half-hour federal court hearing, Drexel attorney Thomas F. Curnin never pronounced the word "guilty" but said in a soft voice that "Drexel is in no position to dispute the government's charges." No senior Drexel officials were present as the plea was entered before U.S. District Judge Kimba M. Wood, although a smattering of Drexel employees looked on from the audience.
A central chapter in the Wall Street corruption scandal thus ended on a quiet, even anticlimactic, note.
After the judge's order, Drexel later Monday wrote the government checks for $523 million, representing all but $150 million of the $673 million that it owes in fines and penalties, interest and illegal profits that must be disgorged.
The plea agreement was worked out in preliminary form last January, but completion was delayed by disagreement over the final terms and by other developments.
Still unresolved are civil and criminal cases against some former Drexel employees. Michael Milken, former head of the junk bond office; his brother Lowell, and former trader Bruce L. Newberg still face charges; the government may bring charges against other present or former Drexel employees as well.
May Fight Drug Abuse
In a statement, Drexel said the settlement was made "in the best interests of our employees, clients and the firm. And while it is for us a highly sobering event, we are determined to make Drexel a model of how a securities firm ought to conduct its business in the '90s."
About $222.2 million of the money paid Monday will go to a Justice Department discretionary fund. Much of that is expected to be used by federal drug chief William Bennett to fight drug abuse, said Benito Romano, the acting U.S. attorney for Manhattan.
Indeed, the infusion of the Drexel money will nearly double the size of the fund, which now contains about $250 million, Romano said. Drexel's contribution also seems substantial when viewed in the context of the anti-drug initiatives announced last week by President Bush, which will add $716 million in new expenditures.
Romano said he found the plea satisfying because it closed one of the U.S. attorney's most significant cases and, he said, because Drexel has cooperated with the government without any disruption that hurt its business. He said Drexel's example should be a "valuable lesson to the business community." However, Drexel officials and others on Wall Street have said they believe that Drexel's business has suffered since the investigation began.
Romano added that the day's events were significant because "after today, it can never be understood that they (Drexel) are not guilty or that their plea was not voluntary."
The prosecution's case grew from information provided by fallen stock speculator Ivan F. Boesky. The six felony counts revolved around six separate securities transactions and included four securities fraud counts and two wire fraud counts.
The government had alleged that Drexel employees were guilty of stock manipulation, filing false documents and concealing the true ownership of blocks of stock, known as "parking."
Many Reasons for Delay
The entry of the guilty plea had been delayed for eight months by a combination of circumstances.
One source of delay was the negotiations between Drexel and the SEC over their separate civil agreement. A judge in the related case against the Princeton/Newport securities firm asked that the Drexel agreement be delayed until the end of that trial to avoid prejudicial publicity.
Also delaying the case were the objections of the Milken brothers to a paragraph in the preliminary agreement that would have prevented Drexel from paying them well over $100 million in 1988 compensation. Prosecutors recently dropped that demand.
Drexel's total bill of $673 million includes $350 million that will be set aside for civil claims, $300 million to pay criminal fines and penalties, plus interest, which began to accrue in January.
The criminal fines and penalties include $16 million in penalties that must be paid under a federal insider trading statute, a $78-million fine that will go to help defray the costs of the U.S. Postal Service law enforcement work and the $222.2 million that will be earmarked for the Justice Department fund.
Of the money that will go for civil claims, $200 million was paid Monday, with an additional $50 million due in one year and the final $100 million in three years.