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More Investigating Agencies Join the Hunt For Wrongdoing

September 17, 1991

WASHINGTON (AP) _ As simultaneous federal civil and criminal investigations proceeded in New York and Washington, state investigators met here Monday to plan their own probe of the Salomon Brothers government bond scandal.

The National Association of Secretaries of State were conferring in Washington with a state regulators group, the North American Securities Administrators Association, to map strategy for their part in the Salomon investigation.

Meanwhile, a growing number of federal agencies in New York and Washington are scrutinizing the Treasury market in the wake of the admissions by Salomon, one of 39 primary dealers in Treasury bonds, bills and notes.

The Wall Street firm has said it made illegal bids at Treasury auctions without customers’ knowledge and bypassed a federal rule preventing bidders from acquiring more than 35 percent of any government security at auction.

The Justice Department’s civil and criminal divisions, as well as its antitrust division are investigating, as is the U.S. attorney’s office in New York.

Generally antitrust actions seek to protect competition in the market place, but the Justice Department has declined to discuss the specific nature of the antitrust inquiry in the Salomon affair.

The department said through a spokeswoman it started a ″wide ranging″ probe in early June. Salomon has admitted violating Treasury auction rules back in December. The firm first admitted wrongdoing in early August.

The spokeswoman declined to comment on a published report that the department is broadening the investigation to see if there was widespread collusion and price-fixing by a number of firms.

The New York Times reported Tuesday that Paul Mozer, Salomon’s former government bond desk chief and the center of the scandal, has approached the government about negotiating a deal, according to unidentified Wall Street lawyers.

However, the government and Mozer’s lawyer, Lee Richards, disagree over whether some of the activities in question were crimes, the newspaper said.

Also looking over Salomon and other major players in the $2.3 trillion government securities markets are the Securities and Exchange Commission, the Treasury Department and Federal Reserve Board.

The SEC is spearheading that probe, having issued more than 200 subpoenas of primary dealers as well as Salomon employees and customers.

At least three congressional subcommittees as well as the New York Stock Exchange and the National Association of Securities Dealers also are looking into Salomon, one of the oldest and largest government securities traders on Wall Street.

Since multibillionaire investor Warren E. Buffett took over as chairman last month, Salomon has said it welcomed the investigartions and would cooperate fully with them.

William McLucas, head the SEC’s Enforcement Division, said his staff was puting in long hours monitoring the voluminous information coming in.

″There’s a lot to be done. There’s a lot of things that have to be dealt with,″ said McLucas, ″We’re hustling to make sure we stay ahead of it.″

McLucas declined comment on a report in Monday’s Wall Street Journal that the SEC was probing whether the New York-based investment firm Steinhardt Partners had any illegal arrangements with Salomon or other securities firms.

Steinhardt Partners Monday night said it had supplied the SEC with documents it had requested concerning its investments in two-year Treasury notes. The firm said in a statement that it bought the notes solely out of expectations that interest rates would fall, as they have.

The firm denied it violated the law.

Federal regulators and investigators have issued subpoenas to several Salomon clients who participated in Treasury auction bids, purchases and sales that involved Salomon misbehavior. Many of the names surfaced in a report by Salomon to Congress confessing its violations.

Officials at the SEC and Justice Department also declined comment on a Journal report that Justice Department officials have spoken recently with a number of traders and salesmen at Salomon and other firms about collusion in bidding at Treasury auctions.

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