Drexel Burnham Lambert, RICO, and Trump

In the Spirit of the Gracious and Compassionate
Creator of the Heavens and the Earth

Lester A. Knibbs aka Doctor Hakeem

Finally, we hope, a refreshing darkness at the end of a long painfully orange tunnel.

In 1990, I was working in the word-processing center at Drexel Burnham Lambert (“Drexel Burnham“, for short), a major Wall Street investment banking firm. I was a temporary, but there were some permanent employees there. One day, a junior executive came into the Center, sat us down, and told us that despite all the sensational front-page news about the notorious Michael Miliken, about junk bonds, and about Drexel Burnham going down, our jobs were safe. Drexel Burnham was not going down.

The next day, the front page headline of The New York Times screamed, “Drexel Burnham Goes Bankrupt”.

In 1988, Drexel Burnham had been threatened with an indictment under the Racketeer Influenced and Corrupt Organizations Act (“RICO“). Rather than be indicted under RICO, the firm chose to plead guilty to lesser felonies.

If Drexel had been indicted under RICO statutes, it would have had to post a performance bond of up to $1 billion to avoid having its assets frozen. This would have taken precedence over all of the firm’s other obligations—including the loans that provided 96 percent of its capital base. If the bond ever had to be paid, its shareholders would have been practically wiped out. Since banks will not extend credit to a firm indicted under RICO, an indictment would have likely put Drexel out of business. By at least one estimate, a RICO indictment would have destroyed the firm within a month. Years later, Drexel president and CEO Fred Joseph said that Drexel had no choice but to plead guilty because “a financial institution cannot survive a RICO indictment.” (Wikipedia)

 As of this writing (May 5, 2017), there are reports of two grand juries that have convened and at least one of them is considering RICO indictments and may be considering issuing warrants to 28 or as many as 42 individuals connected to the Donald J. Trump election campaign.

The primary value of the RICO statute is that the threat of a RICO indictment pressures the potential defendants into pleading guilty to lesser felonies. If, for example, Donald J. Trump were to be indicted under RICO, it would likely bankrupt him and his entire organization — merely an indictment, no trial, no conviction. Better to plead guilty to lesser felonies and not be completely bankrupted.

Then, what happens to a sitting President who has pleaded guilty to “lesser felonies”? As you may recall, Richard M. Nixon resigned in order to avoid an imminent impeachment. But, there was a different breed of Republican in those days. They could work with the Democrats, and actually govern.

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