Word: drexel
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...Drexel's most egregious technique was to force companies into unwanted deals, executives say. In one battle that wound up in court, Staley Continental, a food producer based in suburban Chicago, accused Drexel of trying to pressure Staley executives into launching a buyout bid for their company. Before Staley's $220 million suit reached an out-of-court settlement in 1988, the sensational charges were the talk of Wall Street. "They appealed to your greed," says Robert Hoffman, who was Staley's chief financial officer at the time. "And if that didn't work, they appealed to your fear that...
...Milken's clout grew, financial journalists described him as the most powerful financier since J.P. Morgan. But Milken's penchant for working by his own rules and controlling every situation proved to be his downfall. Drexel's huge profits and free-wheeling methods attracted the attention of federal prosecutors who believed that, among other offenses, Milken fed inside information to a network of traders to manipulate the stocks of his target companies. Prosecutors first snared Dennis Levine, a Drexel investment banker, who pleaded guilty in 1986 to four counts of profiting from insider trading. The Government then got Levine...
Armed with Boesky's testimony, prosecutors threatened to bring racketeering charges against Drexel, which would have permitted the Government to tie up more than $2 billion of the firm's capital. Forced to the wall, Drexel agreed to pay the $650 million and give up Milken, who was indicted last March. He was originally scheduled to come to trial next month, but the Government is considering broad new charges that could delay the case...
While the huge fine sapped Drexel's strength, the killing stroke was the severe slump in the $200 billion junk-bond market. Several factors -- a rising default rate, a slowing economy and a new federal law requiring S&Ls to dispose of their junk bonds -- conspired to send the prices of such securities plunging to 50% or less of their face value since last fall. Stuck with more than $1 billion in devaluing junk, Drexel's credit rating began sliding, and its banks cut off credit two weeks ago. The parent company, starved for cash, began to siphon money from...
...Drexel executives hurriedly moved to sell off the firm's assets, in many cases at fire-sale prices. Drexel attempted to offer whole departments for sale, including Milken's old junk-bond operation in Beverly Hills, but rival firms turned up their noses at anything that might carry legal liabilities or the taint of scandal. The firm's stockholders will get little or nothing, most notably Belgium's Lambert Group, which owned 26% of the firm and may have to take a $92 million write-off. Creditors include Taiyo Mutual Life, a Tokyo firm with a $70 million claim...