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Merrill Lynch, Lazard To Pay $20 Million To Settle SEC Charges

October 26, 1995

BOSTON (AP) _ Merrill Lynch & Co. and Lazard Freres & Co. have agreed to pay more than $20 million to settle charges that they failed to disclose a secret fee splitting arrangement to some municipal finance clients, a Merrill Lynch official said today.

Also today, the U.S. Attorney’s office announced a criminal indictment against a former Lazard adviser who received millions of dollars in payments for Lazard from Merrill Lynch when he recommended that local governments hire Merrill to execute interest rate swaps.

The swaps are financial arrangements designed at minimizing an investor’s risk to sudden moves in interest rates.

The adviser, Mark Ferber, was indicted on 63 counts of fraud and corruption, the U.S. attorney’s office said.

The Securities and Exchange Commission was expected to announce its settlement with Merrill and Lazard later today. Under the agreement, Merrill and Lazard each agreed to pay $12 million, which includes a total of $3.6 million the firms have already paid to resolve a dispute with the District of Columbia earlier this year, Merrill Lynch spokesman James Wiggins said.

The SEC will charge that the Wall Street firms violated antifraud provisions of federal securities laws by failing to disclose a fee splitting arrangement.

``I can confirm to you that we have reached a civil settlement that resolves all matters pertaining to this contract with Lazard Freres to market interest rate swaps to municipal issuers,″ Wiggins said in a telephone interview.

The SEC agreement is part of a broad settlement with authorities in Massachusetts and the District of Columbia, a source familiar with the case said, speaking on condition of anonymity. Merrill Lynch and Lazard Freres do not admit or deny wrongdoing in the settlement, which only involves civil charges.

The two firms will settle with the state of Massachusetts and the Massachusetts Water Resources Agency, which had hired Ferber, a former Lazard partner, as an adviser to arrange financing for projects such as the cleanup of Boston Harbor, a source familiar with the case said.

Joy Fallon, a spokeswoman for the U.S. Attorney’s Office in Boston, also said authorities planned lawsuits against the two firms; no details were immediately available.

``This settlement places no restrictions on our municipal markets business,″ Wiggins said.

``What this settlement provides is that Merrill should have taken additional steps to make sure that Lazard disclosed the contract to its financial advisory clients,″ he said.

The settlement would be the largest of its kind in the municipal finance business. It is a major development in the SEC’s ongoing crackdown on illegal practices in the $1.2 trillion market for municipal bonds.

The municipal market plays a central role in raising funds for construction of highways, schools, sewage treatment plants and other public facilities. The SEC has been investigating corruption in the muni bond market for several years, and brought major cases in New Jersey and Oklahoma earlier this year.

The Department of Justice also has revealed it is investigating the market. Last month, it filed criminal securities fraud charges against a San Francisco municipal bond dealer, charging it used fake bids in the refinancing bonds for Tampa, Fla.

Ferber’s attorneys, Katherine Weinman and Thomas Dwyer Jr., did not return calls.

However, Dwyer said previously that Ferber had told Massachusetts Water Resources Agency officials that he and Merrill Lynch were working together on bond deals. He also has said his client never violated the fiduciary responsibility placed in him by the agency.

The SEC declined comment. Lazard didn’t immediately return a telephone call seeking comment.

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