Government Claims Move S&L Crisis to New Level
NEW YORK (AP) _ Investors and companies that bought junk bonds from Drexel Burnham Lambert Inc. have heaped more than $10 billion in new claims on the collapsed Wall Street firm, accusing it of rampant illegal activity.
Sackfuls of claims by various parties against Drexel arrived at U.S. Bankruptcy Court to meet a Thursday deadline.
The claims are in addition to $11.3 billion sought by two federal thrift bailout agencies and by far exceed the amount Drexel can dole out in its Chapter 11 reorganization.
Lawyers said total litigation claims would exceed $20 billion. More than 100 lawsuits have been filed against Drexel.
One New York law firm alone filed 11 cases seeking $9.28 billion on behalf of shareholders and companies that assert they were defrauded by Drexel, the once high-flying investment firm that sought bankruptcy protection February.
Meanwhile, in a legal claim released Thursday, federal thrift regulators for the first time pinned much of the blame for the S&L debacle on Drexel’s junk bond dealings, which were overseen by Michael Milken.
The Federal Deposit Insurance Corp. and Resolution Trust Corp. accused Drexel of payoffs, fraud, price manipulation and other crimes they allege hastened the demise of 48 S&Ls.
Drexel managed most of the $15 billion in high-risk, high-yield bonds bought by thrifts in the 1980s. When the junk bond market collapsed a year ago, much of the holdings were wiped out. Overall, the S&L crisis is expected to cost taxpayers $500 billion over the next 30 years.
Thrift industry analysts said that without judging whether Drexel broke the law, blaming the firm for the industry’s failure was excessive.
″The fact is junk bonds played a very small role overall, but it’s an area the S&Ls shouldn’t have been in at all in the first place,″ said Kenneth H. Thomas, a Miami consultant who has studied the portfolios of failed thrifts.
Several creditors and outside observers complained that the government was ignoring its own role in the thrift debacle.
″The FDIC monitored the operations of all these thrifts while they were in business and did not take any steps to stop it while the actual conduct was going on,″ said Barry Dichter, attorney for one of Drexel’s largest creditors.