Drexel Burnham Lambert filed for bankruptcy in 1990. The once-powerful investment bank sought protection under Chapter 11 on February 13, 1990, after financial and legal pressures overwhelmed the firm.
Drexel had become Wall Street’s leading underwriter of high-yield, or “junk,” bonds. Its star financier, Michael Milken, helped develop a market that supplied financing for leveraged buyouts, corporate expansion and takeover bids. The business generated enormous profits during the 1980s, but it also attracted investigations into securities fraud and market manipulation.
The firm pleaded guilty in 1988 to criminal charges and paid hundreds of millions of dollars in penalties. Milken separately pleaded guilty to securities offenses in 1990. As the junk-bond market weakened and investors withdrew, Drexel struggled to raise capital and maintain confidence.
The bankruptcy date is sometimes confused with the 1989 collapse of other highly leveraged firms or with the legal cases involving Milken. Those events contributed to Drexel’s downfall, but the bank’s formal bankruptcy filing occurred in 1990.