What Went Wrong: An Examination of Drexel Burnham Lambert's Descent into Bankruptcy

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Title: What Went Wrong: An Examination of Drexel Burnham Lambert's Descent into Bankruptcy
Author: Sangree, William
Advisor: Smith, Paul Jacov
Department: Haverford College. Dept. of History
Type: Thesis (B.A.)
Issue Date: 2012
Abstract: In the Late 1960s, Michael Milken, a brilliant graduate of the University of Pennsylvania's Wharton School, took some obscure research on the performance of high-yield bonds to a small, second tier Wall Street firm named Drexel Firestone. By the mid 1980's Milken had become the most storied financier on Wall Street, his high-yield bonds had ignited an American business revolution, and the firm, now known as Drexel Burnham Lambert, was launched to the apex of American finance. However, Drexel Burnham Lambert became engulfed in one of the largest securities fraud scandals in American history, and went from being the most powerful investment house on Wall Street to a bankrupt shell in a few short years. Though crimes were committed at Drexel, its eventual settlement with the SEC and criminal prosecutors was not an inevitable outcome. Over the course of the investigation, Drexel took a number of actions that, in retrospect, sealed their legal fate. Furthermore, the magnitude of the scandal and the prominence of Drexel Burnham Lambert have resulted in the perpetual tying of Drexel's fate to the insider trading crimes of the 1980s. The firm's collapse is widely considered a spectacular consequence of the greed and excess of the period on Wall Street. Despite some obvious ties between the civil and criminal investigations and the firm's failure, the crimes alone do not tell the story of the Drexel's demise. Drexel remained profitable for months after their settlement with the SEC, and indications from all levels of management were that the firm was eagerly looking forward to the future. Some of Drexel's largest clients reaffirmed their loyalty to the firm after the settlements, and the response of financial markets to both the investigations and their outcomes was muted. Confidence in Drexel did not erode as a result of the litigation, and Drexel's financial position was strong enough to withstand the fines the government demanded. Furthermore, the filing for Chapter 11 bankruptcy protection does not necessarily mean the end of the firm. A number of major corporations have emerged from bankruptcy and regained profitability, and there are important reasons why Drexel's fate was so ominous. Finally, the national media is an often overlooked actor in the Drexel story, when in fact it played a significant role that defined the tone of the case.
Subject: Securities fraud -- United States
Subject: Drexel Burnham Lambert Incorporated
Subject: Securities industry -- Corrupt practices -- United States
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Sangree, William. "What Went Wrong: An Examination of Drexel Burnham Lambert's Descent into Bankruptcy". 2012. Available electronically from

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