Another Ex-Drexel Trader May Face Fraud Charges

WASHINGTON —  Federal prosecutors have informed a former trader in the “junk bond” department of Drexel Burnham Lambert Inc. that he is likely to be charged with criminal securities fraud, widening the circle of present and former Drexel employees facing an expected indictment, according to sources familiar with the case.

The former trader, Peter Gardiner, worked under the direct supervision of Michael Milken, Drexel’s controversial junk bond chief.

Gardiner has received a so-called target letter from Manhattan U.S. Atty. Rudolph W. Giuliani indicating that criminal fraud charges against him are likely, sources said.

Role Investigated

As previously reported, Drexel chief executive Frederick H. Joseph told employees Monday that settlement talks with prosecutors had broken down and that a racketeering indictment against the firm was likely soon.

Gardiner couldn’t be reached for comment Tuesday. After leaving Drexel, Gardiner was employed as a trader at Elliott Associates, a Manhattan investment concern that is a Drexel client, but he recently left the firm, according to an Elliott official.

Prosecutors in Giuliani’s office have been investigating Gardiner’s role in the trading of Viacom International Inc. stock during September, 1986, according to sources.

The Securities and Exchange Commission has accused Drexel and Milken of illegally using inside information about a possible takeover while trading large amounts of Viacom stock.

Gardiner was the Drexel trader who worked directly with Milken to execute the complex trades in Viacom securities that are described in the SEC’s lawsuit, sources said.

In addition to Gardiner, federal prosecutors have been exerting heavy pressure recently on other present and former employees in Drexel’s Beverly Hills-based junk bond department.

Two key employees in the department, Terren S. Peizer and James Dahl, have been granted immunity from prosecution in exchange for their testimony before a grand jury.

Another junk bond department employee, Warren Trepp, recently received a target letter from prosecutors, indicating that criminal fraud charges against him are likely.

In the SEC complaint, which was filed against Drexel, Milken and other employees in September, the charges about insider trading in Viacom stock are one of only two instances where the commission’s allegations are not based on information provided to the government by jailed stock speculator Ivan F. Boesky.

Boesky agreed to cooperate in prosecutions of Drexel and Milken in exchange for reduced charges.

Christmas Cheer

As the likelihood of criminal charges increases, Drexel executives have tried to boost morale at the embattled firm with extravagant displays of humor.

At Christmas dinners for employees, Drexel Chairman Robert Linton sang a song to firm executives titled “Rudy the Red-Nosed Reindeer,” in which the popular lyrics were revised to refer to Giuliani.

After he finished singing Sunday night, Linton handcuffed himself to Chief Executive Joseph, according to people who were present.