(3 of 3)
While such penalties remain pure speculation at this point, the heat of investigation surrounding Drexel is already driving away business, its competitors claim. The firm's headaches grew even more severe last week, when Staley Continental, an Illinois-based food company, sued the investment house for more than $200 million in damages in a case centering on Drexel's junk- bond operation. Staley claims that last November Drexel tried to push the food company's management into a deal to buy up the corporation's stock, which would have been financed by the investment firm. Drexel called the lawsuit an "ill-conceived attempt to capitalize on the current climate" of the insider-trading scandal.
Many experts believe the really blatant cases of insider profiteering are rare, despite the hubbub. "The vast majority of the people on Wall Street are not doing it," says Edward Brodsky, a Manhattan securities lawyer. "Those who are, however, infect the integrity of the entire marketplace." Maintaining that integrity has been a difficult challenge in the deregulated, hurly-burly Wall Street of the 1980s, where traders have been tempted to use insider tips to maintain their competitive edge.
If their employers are now to be held accountable for insider transgressions, that development may be deserved. Many Wall Street firms have imposed unrealistic expectations on their traders and bankers without giving them a solid grounding in old-fashioned ethical values. By pushing salaries and bonuses to outlandish heights, investment firms have turned money into the ultimate measure of success. Declares Felix Rohatyn, senior partner of the investment firm Lazard Freres, in an essay for the New York Review of Books: "Too much money is coming together with too many young people who have little or no institutional memory, or sense of tradition, and who are under enormous pressure to perform in the glare of Hollywood-like publicity."
It was a soaring life-style that perhaps brought the downfall of Martin Siegel. Besides keeping a posh Manhattan apartment, he and his wife built a spectacular cedar-and-glass beachfront home on Connecticut's Long Island Sound, complete with tennis court and gym. He typically commuted to work in a chartered helicopter. Siegel reportedly met with Boesky in New York City's Harvard Club in 1982 and bemoaned his compensation at Kidder, Peabody, which he viewed as inadequate even though it was already well into six figures. That lunch date allegedly led to the tip-selling arrangement in which Siegel boosted his income by a total of $700,000 over three years. But by making that purported deal, Siegel, only 38, will now forgo untold future income in the merger game. Since he is barred for life from the securities industry and could get up to ten years in prison, the lush life he enjoyed as a star dealmaker is already only a bitter memory.