Lawyers for Drexel Burnham Lambert Inc. filed court papers Tuesday seeking the return of more than $254-million in employee bonuses paid in the months before the once-mighty junk bond broker collapsed two years ago.
The filing in U.S. Bankruptcy Court in Manhattan argued that the bonuses were illegal and should instead be used to repay the company's other creditors.
Drexel, one of the dominant Wall Street powerhouses of the 1980s and a pioneer of the junk bond market, filed for bankruptcy court protection on Feb. 13, 1990, humbled by a cash squeeze and a confidence crisis stemming from its guilty plea to securities fraud charges in 1989.
The firm later disclosed it paid at least $254.2-million in bonuses at or near the end of 1989 to hundreds of top employees.
The timing of the payments created an uproar among Drexel's other creditors because it suggested that management was hogging whatever money was left at the time it knew the firm was disintegrating.
Drexel said at the time that if it had not made the payments, top executives would have left the firm much sooner, accelerating the company's slide into bankruptcy.