‘Drexel Burnham’ CEO Gets Two Years for Securities Fraud (1)

One of the highest-flying names from Wall Street of the 1980s reemerged Friday in the same place where it came crashing down decades ago -- a federal securities-fraud prosecution.

Drexel Burnham Lambert’s chief executive officer was sentenced Friday in federal court in Manhattan to two years in prison for defrauding investors out of $4.4 million. The firm Craig Zabala led, however, is not the same one where Michael Milken pioneered the junk bond. Rather, Zabala, 69, appears to have acquired the rights to the abandoned trademark at some point using an entity called DBL Holdings LLC.

DBL was just one of several companies Zabala employed in his scheme, Manhattan U.S. Attorney Audrey Strauss said in a statement. He also led a purported merchant bank called Concorde Group and another company called Blackhawk Capital Group BDC. Prosecutors said he defrauded investors by claiming he was raising money to acquire other financial firms to service mid-market clients.

“He lied to investors about how much money had been raised, who had invested, how close the firm was to an IPO, and how he would use investors’ money,” Strauss said. “Zabala appropriated most of the money for his own use or to pay off investors in a Ponzi-like fashion.”

Zabala pleaded guilty and agreed to repay his investors. His lawyer Michael Kelly said in a statement that Zabala accepted responsibilty for his actions. “He is looking forward to making amends with the investors, to helping educate students to avoid the errors that he made, and to engaging in other charitable work,” Kelly said.

The real Drexel, which became one of Wall Street’s biggest banks due to Milken’s work in high-yield market, also came to a bad end at hands of Manhattan federal prosecutors. Milken and others at the bank were prosecuted for securities fraud, and the firm was forced to reach a settlement with then U.S. Attorney Rudy Giuliani and the Securities and Exchange Commission. It filed for bankruptcy in 1990.

(Updates with comment by Zabala’s lawyer)

To contact the reporter on this story:
Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net

To contact the editors responsible for this story:
David Glovin at dglovin@bloomberg.net

Anthony Lin

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