NEW YORK -- Drexel Burnham Lambert Inc. sued hundreds of its former employees yesterday in an attempt to recover more than $250 million in bonuses paid shortly before the company filed for bankruptcy in early 1990.
The bonuses have been at the heart of some of the biggest controversies resulting from the collapse of the Wall Street powerhouse.
The size of Drexel's bonuses was long a legend on Wall Street, but yesterday's lawsuit for the first time provides details of how rich those payments were, showing that many executives got between $100,000 and $1 million each month.
The largest bonus, $16.6 million, went to Leon Black, former head of mergers and acquisitions, less than a month before the bankruptcy filing. But the largess was widespread, with more than 50 executives receiving more than $1 million even as the firm's finances deteriorated.
Since the collapse, some Drexel executives have said the bonus payments seemed to lose all connection with reality in the final years as billions of dollars in revenues flowed through the firm.
Still, the huge payouts appeared almost minuscule in comparison with the more than $1 billion paid over five years to Michael Milken, former head of the "junk" bond division.
Last year, Milken pleaded guilty to six felonies involving securities laws violations and is now serving a 10-year prison sentence. Drexel is now negotiating a settlement of other litigation against Milken.
Although the payments have come back to haunt the Drexel executives who received them, no bonus money is being sought from the former head of the firm, Frederick H. Joseph. In the months before the bankruptcy, Mr. Joseph scrambled to strengthen the firm's finances and took his bonus in stock, the value of which was wiped out.
But Mr. Joseph was widely held accountable for a bonus structure that many believe flew wildly out of control. The payments made shortly before the bankruptcy came largely as a result of guarantees Mr. Joseph had made earlier that year. As the firm deteriorated no effort was made to renegotiate those guarantees.
In October, the Securities and Exchange Commission criticized the payments as excessive but concluded that Drexel had done nothing illegal in making them.
The bonus guarantees proved devastating to the firm. In June 1989, as the firm was experiencing huge losses in its junk bond investments and deals it underwrote, Drexel paid about $10.5 million in bonuses to about 120 executives in its corporate finance division alone. By July, the firm's condition had worsened, but the bonuses kept going up, with the corporate finance executives getting about $16.3 million that month.
The total payments in those months were slightly lower for the more than 60 executives in the junk bond division with about $7.8 million paid in June and about $6.6 million paid in July. But bonus payments exploded in August for the 60 executives, who divided about $25.4 million for the month. Multimillion-dollar bonuses totaling as much as $20 million in a single month continued to be paid every month to the junk bond division until bankruptcy.
Those payments gave many Drexel employees more money in a single month than many would see in a lifetime. For example, John Kissick, who was named to replace Milken as head of the division in 1989, was paid about $1 million a month from June though December 1989.