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Drexel Deal May Exclude Insider Trading; Protect Individuals

December 23, 1988

NEW YORK (AP) _ Speculation grew Friday that the historic plea deal sparing Drexel Burnham Lambert Inc. from a wide-ranging indictment excludes insider trading charges and omits names of at least some individual lawbreakers.

Sources who spoke on condition they not be identified said the pact was structured to minimize the investment giant’s exposure to private civil lawsuits and put the staggering securities fraud case behind it for good.

But few specifics of the settlement could be learned, and by late Friday no formal document had been filed by the Manhattan U.S. attorney’s office. Drexel spokesman Steven Anreder said it was unclear when details would be released.

Drexel agreed to settle the biggest fraud case in Wall Street history Wednesday by paying a record $650 million in fines and restitution to the government and pleading guilty to six felony counts.

The New York Times, quoting unidentified Drexel employees, reported Friday that the six counts would concern alleged manipulations of stock in Stone Container Corp., Fischbach Corp., MCA Inc. and C.O.M.B. Co., as well as ″stock parking″ violations in Phillips Petroleum Co. and Harris Graphics Corp.

Stock parking involves hiding ownership of stock in someone else’s name to avoid Securities and Exchange Commission disclosure requirements.

Five of the transactions mentioned by the Times involved Drexel’s relationship with Ivan F. Boesky, the now-imprisoned inside trader who implicated the firm and its high-yield bond financier Michael Milken when Boesky himself was exposed more than two years ago.

The C.O.M.B. transaction was said to involve Drexel’s relationship with Princeton Newport Partners, a small New Jersey securities concern that was dissolved earlier this month because of racketeering and fraud charges against five of its principals and a former Drexel bond trader.

Pleading guilty to manipulation and parking charges is considered less serious than insider trading, which is the use of nonpublic information to profit in securities dealings.

Lawyers said these pleas likely would lessen Drexel’s vulnerability to multiple lawsuits by private investors, since it is difficult to prove financial losses resulted from such wrongdoing.

The Times asserted that none of the charges would specifically name any people who committed wrongdoing, which could further insulate the firm and the individuals from civil litigation.

But sources reached by The Associated Press said it wasn’t clear whether individuals would be named, suggesting this was still an unresolved matter.

The plea agreement capped an investigation of the Wall Street giant that snowballed into the biggest securities fraud probe ever and raised disturbing questions about the extent of greed and conflicts of interest among the big dealers in the investment banking business.

The agreement still requires approval from the Justice Department and SEC, which has accused Drexel, Milken and other employees of far more widespread and insidious charges in a civil suit filed nearly four months ago.

There was no word Friday on whether the SEC would seek additional sanctions against Drexel before consenting to the plea agreement and dropping the suit.

But there was widespread speculation that the enforcement agency would require the expulsion of Milken from the securities business and would likely impose stiff restraints on the operations of Drexel’s West Coast high-yield bond department, which Milken currently heads.

Drexel’s agreement to cooperate in the government investigation greatly increases pressure on Milken himself to settle as-yet unfiled charges against him, which reportedly include racketeering counts that carry enormous fines and lengthy prison terms if he is convicted.

But spokesmen for Milken said Friday that he was still maintaining his innocence, and if indicted he would vindicate himself in court.

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