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Salomon Scandal Figure Prepares For Guilty Plea

January 7, 1993

NEW YORK (AP) _ Former Salomon Brothers bond trader Paul Mozer has reached a plea agreement with federal prosecutors over deceptive bond trades, but his legal problems may not be over, according to documents released Thursday.

Mozer, a central figure in the Salomon Inc. Treasury auction scandal, appeared for the first time in U.S. District Court in Manhattan for arraignment on two counts of making false statements to the government.

Mozer, through his attorney, pleaded innocent at the hearing as a matter of court procedure. Later, a hearing was set for Monday before Judge Robert B. Patterson Jr., at which time Mozer is expected to formally enter his guilty plea.

Mozer’s attorney Stanley Arkin released copies of an agreement with the U.S. Attorney’s Office in which Mozer consented to plead guilty to two counts of making false statements to the Federal Reserve concerning a Feb. 21, 1991 Treasury bond auction.

Mozer, 36, waited an hour and a half in the crowded courtroom while felons in prison garb and handcuffs were arraigned prior to his appearance. The former head of Salomon’s government bond desk didn’t speak to reporters and appeared uneasy as he read a newspaper to kill time.

The plea carries a maximum prison sentence of 10 years, but it’s unlikely Mozer will receive that term. The U.S. Attorney’s Office said Mozer provided substantial assistance in the government’s investigation, a factor judges consider when determining a sentence.

Mozer has agreed to pay $500,000 into a special government escrow account upon sentencing. The fund will be used to pay any claims from private lawsuits or fines from a pending Securities and Exchange Commission lawsuit, the plea agreement said.

The SEC last month sued Mozer and his aide, Thomas Murphy, on 22 counts of wrongdoing, including securities fraud and insider trading. Mozer and Murphy are fighting the charges.

However, the judge could set the fine at twice the gross gain, or loss, involved in the crime. Assistant U.S. Attorney John Auchincloss wouldn’t say if the government believes Mozer profited from or caused others to suffer losses as a result of the trades.

Arkin, in a statement released after the hearing, said Mozer’s dealings ″produced no loss to the government or Salomon’s customers nor did it produce any gain for Mr. Mozer or Salomon.″

Auchincloss confirmed that Mozer could face additional charges related to possible antitrust violations. The Justice Department’s antitrust division in Washington is investigating Mozer’s dealings in April and May, 1991, Treasury auctions, Arkin said.

Mozer contends the plea agreement bars any government agency from prosecuting him further for the Treasury auctions.

″My view is that it would be unjust and in violation of the spirit and letter of the understanding I have with the government overall if Mr. Mozer were to be prosecuted by the antitrust division,″ Arkin said.

Salomon has depicted Mozer and the bond desk he ran as a renegade operation that broke Treasury bidding rules repeatedly by submitting phony bids in an attempt to exceed its allowable share.

Prosecutors filed a criminal information, a document similar to an indictment, that charged Mozer oversaw three bids at a Feb. 21, 1991, auction of five-year notes that gave Salomon 54 percent of the securities. That exceeded the allowable limit of 35 percent.

Mozer later attempted to cover up the trades when confronted by Treasury officials, the document said.

Arkin said Mozer’s actions didn’t warrant a criminal prosecution.

Salomon has admitted placing false bids for Treasury auctions between 1989 and 1991. The firm said it cooperated with government investigations, and last August agreed to pay $290 million to settle SEC civil charges.

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