The investment banking firm of Drexel Burnham Lambert Group Inc., which avoided trial by pleading guilty last year to securities violations, may face a public court hearing after all, to answer sweeping new government allegations that it deliberately rigged the junk bond market to drive up prices.

The government, in claims made public in full yesterday, charged that a capital-hungry Drexel set its sights on the federally insured deposits at thrift institutions as part of a scheme to "create the illusion" that junk bonds, the most successful financial creation of the '80s, "had value and that such value could be realized ..."

The total claim against Drexel, filed in U.S. Bankruptcy Court in Manhattan, is for $11.3 billion, one of the largest ever made by a creditor in a bankruptcy proceeding.

The claim is far higher than initial reports Wednesday night, which put the government's claim at $6.8 billion. The total includes $4.5 billion on behalf of a still functioning thrift, Columbia Savings & Loan of Los Angeles, which has massive losses from Drexel's high-risk, high-yield junk bonds.

It is the first instance in which the government has alleged there was a widespread conspiracy among thrift institutions and is the strongest government criticism yet made of the junk bond market. Drexel, the government contends, was at the hub of a complex web, and manipulated the market by employing "a network of co-conspirators, including persons who controlled S&Ls, to purchase and sell junk bonds at the bidding of Drexel."

It said Drexel's methods included "market manipulation, threats, bribes, agreements to control prices and numerous fraudulent misrepresentations."

The government's action sets the stage for a high-powered confrontation before U.S. Bankruptcy Court Judge Frank Conrad in which lawyers from some of the country's most prominent law firms will argue the nature of the so-called junk bond market, which became a headliner in the financial high-wire acts of the '80s.

The New York firm of Cravath, Swaine & Moore will argue the government's position that the entire market was built upon Drexel's alleged web of deception, while a battery of lawyers for Drexel is expected to counter that junk bond trading was too widespread to have been the outcome of a manipulative scheme.

The Resolution Trust Corp. (RTC), the agency overseeing the thrift cleanup, estimates that it will lose $1.25 billion on the junk bonds it has so far inherited from failed thrifts.

The RTC, which along with the Federal Deposit Insurance Corp. made the claim against Drexel, said it expects to be saddled with many more junk bonds as more thrifts close.

The agencies were in court last night seeking to extend yesterday's filing deadline so that other thrifts that are likely to end up in government hands can lodge claims against Drexel.For its part, Drexel and its defenders were aghast at what they saw as a politically inspired attempt by the government to heap blame on Drexel and Michael Milken, the architect of its junk bond department, to divert attention from the government's own mismanagement of the S&L debacle and other economic problems.

"Their only audience is Congress," said a Drexel executive, who spoke on condition that he not be identified. "They're going after this big fat cat {Drexel} and saying it caused all the problems. It's a nice target. It's in bankruptcy."

The executive said the junk bond market's troubles damaged "maybe a couple" of savings and loans. The executive said the government bore some responsibility for the turndown in the junk market by passing legislation that forced the savings and loans to reduce their holdings of junk bonds.

Drexel said in a statement issued yesterday that the government was trying to use it as a "scapegoat" and pledged to strongly contest the claims.

Legal specialists said that one of the government's goals in making the claims against Drexel could be in part to position itself to act in the future to recover money from other individuals or institutions that have more money than Drexel does now.

"The long-term significance of this is not so much to get money out of Drexel, but to establish a legal theory under which they say that Drexel's illegal conduct was aided and abetted by certain individuals who are still solvent" and are therefore good candidates for future claims, said John C. Coffee Jr., a Columbia University Law School professor who specializes in securities and criminal law.

"There is more money {to be had} going after full pockets than empty pockets," Coffee said. He said that likely potential future targets of the government, in this scenario, included Milken himself, who reportedly is worth $700 million.

Government officials said that claims against individuals may be developed during the course of the bankruptcy proceedings, but said the immediate aim is to recover funds from Drexel.

As of July, when it issued its last financial statement, Drexel reported $3.1 billion in assets and $2.9 billion in debts. The government has said it would seek money from two restitution funds totaling $750 million that Drexel and Milken set aside to settle other charges.

Other potential sources of funds, touched on briefly in the government's filing, are a number of limited partnerships in which Drexel and S&L officials held interests. They "diverted attractive investment opportunities from their customers to {the} limited partnerships," the government claimed.

FDIC officials could not say whether the government would have priority over other Drexel creditors, whose claims totaled more than $20 billion upon the filing deadline.

Legal experts said the government will face a challenge in persuading the New York bankruptcy court that the savings and loans were wronged because of deliberate manipulation of the junk bond market by Drexel.

To justify its claim, the government will have to demonstrate that individuals or institutions bought junk bonds, despite knowing that they were a bad investment, as part of a conscious effort to deceive other investors and artificially push up the bonds' price.

The government said in its claim that conscious manipulation of markets did in fact take place. It alleged that Drexel and others deliberately misled investors into thinking that junk bonds were worth more than they were and that the market for them was more liquid -- that is, demand for junk was higher -- than it actually was. McCartney reported on this article from New York.