INSIDER-TRADING COVERAGE. Press relies on unnamed sources to report on Drexel. Company says `speculation' is published, despite no charges

Gary Hart isn't the only one who claims to have suffered at the hands of an overzealous press corps. Drexel Burnham Lambert's chief executive, Frederick Joseph, recently complained that it is ``outrageous'' that ``the press is publishing speculation by unnamed sources,'' doing ``irreparable harm to the firm and individuals.'' Indeed, media coverage of the government probe into insider trading has leaned heavily on anonymous sources. Journalists and journalism professors question the propriety of this coverage.

No one at Drexel has been charged with wrongdoing. Still, allegations and suspicions have been aired regularly in the Wall Street Journal, the Washington Post, and the New York Times.

In the last six months, eight major stories on Drexel in the Wall Street Journal have relied substantially on anonymous sources. Similarly, the Washington Post has run at least three, and the New York Times has published at least two. Often, the only attribution is ``lawyers say,'' or ``sources familiar with the investigation say.''

These reports have been focusing on alleged government efforts to implicate Michael Milken, the architect of Drexel's successful junk-bond financing unit, in the Ivan Boesky insider-trading scandal.

For example:

``People familiar with the investigation said that Mr. Milken is the official that evidence suggests was most directly involved with Mr. Boesky in the suspected scheme [to profit illegally from takeovers],'' the Wall Street Journal reported on Feb. 5.

``Boesky paid Drexel $5.3 million in 1986. Boesky has said that his payment to Drexel reconciled accounts in a secret arrangement he had with Milken, according to sources who are familiar with the case,'' the Washington Post wrote on April 24.

These allegations may or may not prove to be true. Last November, the Wall Street Journal named the 12 deals under investigation, and last month Boesky pleaded guilty to a felony relating to one of the 12.

Still, of the above Journal quote, press critic Norman Isaacs said: ``I wouldn't run it. The accusation is so flimsy that I could do damage to an individual that has not been charged with anything.'' Mr. Isaacs, an educator, a champion of journalism ethics, and a former editor, adds: ``I distrust this kind of reporting.''

Using unnamed sources also raises questions about whose interests are served by the newspaper. ``Who are `people'?'' asks Burton Benjamin, senior fellow at Columbia University's Gannett Center for Media Studies and a former senior executive producer at CBS News.

``Your suspicions are that it's the US Attorney's office or the SEC [Securities and Exchange Commission] or a rival firm that wouldn't mind sticking it to Drexel,'' Mr. Burton says. This point takes on increased significance given that rumors of Drexel's imminent demise have circulated on Wall Street since Boesky agreed to cooperate with the government investigation last November.

A March 16 story in Investment Dealers' Digest, an industry trade magazine, reported that Drexel clients receive daily calls from stockbrokers, bankers, and competitors claiming, among other things, that ``Drexel will be fined $500 million to $1 billion,'' or ``Drexel has closed its Beverly Hills junk-bond headquarters,'' or ``On Friday, a dozen senior Drexel officials will be indicted.''

Government prosecutors have been known to leak information to the press to put pressure on a suspect or to gain an out-of-court settlement. But government investigators flatly deny being the source of these leaks.

``To my knowledge, the information has not come out of the commission staff,'' says Gary Lynch, director of enforcement at the SEC. Leaks are ``counterproductive to our work in almost every instance,'' he says.

US Attorney Rudolph Giuliani could not be reached for comment. But a spokeswoman said, ``Leaks of any sort are extremely disturbing to us. The information doesn't come from this office.''

Other sources with an interest in influencing press coverage are the lawyers hired by individuals who have charged or are under investigation. The American Bar Association's ethical guidelines on talking to the press vary from state to state. But, generally, if a case is under ajudication, lawyers are not supposed to leak information to the press that could prejudice the outcome.

Still, it's not unusual for a lawyer to try to keep a client out of court by leaking information that could lead to a quicker settlement or undermine an investigation.

``I'm not saying it's happening here, but generally in cases involving ongoing investigations, leaks come from defense lawyers,'' says Frederick Andrews, business and financial news editor of the New York Times. ``They're obviously interested in portraying their client in a flattering way. Often they talk to us, sometimes they even come to us.''

Frank Swoboda, assistant managing editor of business and finance at the Washington Post, acknowledges that ``in an investigation like this, everybody tries to use the news media to their advantage. We're not unaware of this. We have to satisfy ourselves we're not being used by a single source.''

The Post's policy is to hold stories based on one anonymous source unless a second source can be found to verify the claims. ``We won't go with an allegation from a single source. It must come from two sources. We're not happy with it, but we're morally at ease with it.''

Stewart Pinkerton, deputy managing editor of the Wall Street Journal, says the newspaper has no formal policy on identifying sources. ``The important thing is that we understand where the source is coming from and we feel it's an accurate portrayal of the situation. You have to trust the reporters doing the work and the judgment of the editor.''

Anonymous sourcing is not a new or isolated problem. At some major newspapers, editors confront the issue almost daily. But it remains a difficult judgment. The public's right to know must be balanced against damage incurred if the story is untrue. An ``off the record'' source is less credible. But the source's job may be at stake if the source's name is revealed. And there's a strong temptation to run a ``juicy'' story, even if poorly sourced, to beat the competition.

Andrew Barnes, chairman of the ethics committee of the American Society of Newspaper Editors and editor of the St. Petersburg Times, says, ``If it's an important story, and you're sure it's true, and the only way you can print it is unsourced, you should do it.''

But he also notes that ``when a source is not verifiable by stance or bias, it is the paper that's asserting this is true. And you better be awfully sure it's true.''