RATIONALE: Drugs used in chemotherapy, such as bendamustine hydrochloride and dexamethasone, work in different ways to stop the growth of cancer cells, either by killing the cells or by stopping them from dividing. Lenalidomide may stimulate the immune system in different ways and stop cancer cells from growing. Giving bendamustine hydrochloride together with lenalidomide and dexamethasone may kill more cancer cells. PURPOSE: This phase I/II trial is studying the side effects and best dose of bendamustine hydrochloride and lenalidomide when given together with dexamethasone and to see how well they work in treating patients with relapsed multiple myeloma.

PRIMARY OBJECTIVES: I. To determine the Maximum Tolerated Dose (MTD) of bendamustine and lenalidomide in combination with dexamethasone in subjects with Multiple Myeloma (MM) in first or second relapse. (Phase I) II. To evaluate the confirmed response rate of bendamustine in combination with lenalidomide and dexamethasone in subjects with MM in first or second relapse. (Phase II) SECONDARY OBJECTIVES: I. To evaluate the safety of bendamustine in combination with lenalidomide and dexamethasone. (Phase I and II) II. To evaluate time-to-tumor-progression, progression-free survival, duration of response, and overall survival. (Phase II) OUTLINE: This is a phase I dose escalation study of bendamustine hydrochloride and lenalidomide followed by a phase II study. Patients receive dexamethasone orally or IV on days 1, 8, 15, and 22; bendamustine hydrochloride IV over 30 minutes on days 1 and 2; and oral lenalidomide once daily on days 1-21. Treatment repeats every 28 days for 6 courses in the absence of disease progression or unacceptable toxicity. Patients achieving at least stable disease after 6 courses may continue to receive lenalidomide and dexamethasone as above in the absence of disease progression or unacceptable toxicity. Dexamethasone may be discontinued after 12 courses of therapy at the treating investigator's discretion. After completion of study treatment, patients are followed at 4 weeks and then periodically for up to 2 years.

Inclusion:

• Diagnosis of MM and documentation of at least 1 prior therapy (induction therapy followed by stem cell transplantation is considered one prior therapy) but not more than two previous therapies
• Females of childbearing potential (FCBP) must have a negative serum or urine pregnancy test with a sensitivity of at least 50 mIU/mL within 10 - 14 days prior to and again within 24 hours of starting lenalidomide
• Men must agree to use a latex condom during sexual contact with a FCBP even if they have had a successful vasectomy; all patients must be counseled at a minimum of every 28 days about pregnancy precautions and risks of fetal exposure
• Ability to understand the purpose and risks of the study and provide signed and dated informed consent and authorization to use protected health information
• Able to take aspirin (325 mg) daily as prophylactic anticoagulation (patients intolerant to ASA or at high risk of developing thrombosis may use warfarin or low molecular weight heparin)
• AST (SGOT) and ALT (SGPT) =< 3.0 x upper limit of normal (ULN)
• Creatinine clearance >= 60 mL/min (Cockcroft-Gault calculation) for patients enrolled in Phase 1 and Creatinine clearance >= 30 mL/min (Cockcroft-Gault calculation) for patients enrolled in phase 2 portion
• Patients with measurable disease, defined by any of the following: serum monoclonal protein >= 1.0 g by protein electrophoresis; > 200 mg of monoclonal protein in the urine on 24-hour electrophoresis; serum immunoglobulin free light chain >= 10 mg/dL AND abnormal serum immunoglobulin kappa to lambda free light chain ratio; or monoclonal bone marrow plasmacytosis >= 30% (evaluable disease)
• All necessary baseline studies for determining eligibility must be obtained within 21 days prior to enrollment
• Subject has an ECOG =< 2 OR Karnofsky >= 60% performance status; patients with lower performance status based solely on bone pain secondary to multiple myeloma will be eligible
• FCBP must either commit to continued abstinence from heterosexual intercourse or begin two acceptable methods of birth control, one highly effective method and one additional effective method AT THE SAME TIME, at least 28 days before she starts taking lenalidomide; FCBP must also agree to ongoing pregnancy testing
• Absolute neutrophil count (ANC) >= 1,000 cells/dL (1.0 x 10^9/L) (growth factors cannot be used within 14 days of first drug administration)
• Untransfused platelet count >= 75,000 cells/dL (50 x 10^9/L) for patients in whom < 50% of bone marrow nucleated cells are plasma cells; but platelet count >=50,000/dL for patients in whom 50% of bone marrow nucleated cells are plasma cells
• Total Bilirubin =< 1.5 mg/dL
• Hemoglobin >= 8.0 g/dl

Exclusion:

• Diagnosed or treated for another malignancy within 3 years of enrollment, with the exception of complete resection of basal cell carcinoma or squamous cell carcinoma of the skin, an in situ malignancy, or low-risk prostate cancer after curative therapy
• Patients may be receiving concomitant therapy with bisphosphonates and low dose corticosteroids (e.g., prednisone up to but no more than 10 mg p.o. q.d. or its equivalent) for symptom management and comorbid conditions; doses of corticosteroid should be stable for at least 7 days prior to study treatment
• Prior radiation therapy within 2 weeks of the first dose of study treatment
• Known active infection requiring parenteral or oral anti-infective treatment
• Serious psychiatric illness, active alcoholism, or drug addiction that may hinder or confuse follow-up evaluation
• Patient has hypersensitivity to any of the components of study therapy - Known HIV or active hepatitis B or C viral infection
• Known hypersensitivity to required prophylactic medications
• Patient has received other investigational drugs within 14 days before enrollment
• Pregnant or breast-feeding females (lactating females must agree not to breast feed while taking lenalidomide)
• Subjects with evidence of mucosal or internal bleeding and/or platelet transfusion refractory (i.e., unable to maintain a platelet count >= 50,000 cells/mm^3)
• Concurrent therapy with a marketed or investigational anticancer therapy
• Any medical conditions that, in the Investigator's opinion, would impose excessive risk to the patient
• Other investigational agents are not to be used during the study
• Prior peripheral stem cell transplant within 12 weeks of the first dose of study treatment