Paine Webber Is Censured by SEC for Overcharging

Government regulators Friday censured Paine Webber Inc. for overcharging customers in bond deals in 1984-85 and said the brokerage will repay an undetermined amount to some retail customers.

In an administrative disciplinary action, the Securities and Exchange Commission charged Paine Webber with violating anti-fraud provisions of federal securities laws by charging excessive markups and markdowns in the sale and repurchase of stripped U.S. Treasury bond coupons between Jan. 1, 1984, and July 31, 1985.

Paine Webber settled the SEC’s allegations by accepting the censure, volunteering to make some customer repayments and launching a review of its existing procedures for “stripped” coupon markups and markdowns to prevent future violations.

The brokerage neither admitted nor denied the SEC allegations.

A Paine Webber spokesman refused to comment on the size of the company’s potential liability under its agreement with the SEC to make customer repayments, or any other aspects of the case.

Paine Webber, like most large retail brokers, buys large quantities of bonds and bills from the government and “strips” them for sale in small denominations for their retail customers.

The particular bonds involved were so-called zero-coupon bonds, according to an SEC attorney who worked on the case.

Such bonds are usually bought at a deep discount from their face amount, pay interest only at maturity and are commonly purchased for individual retirement accounts.

Customers could sell the bonds normally by going back to the broker to deal in an after-market made up of the broker’s customers.

In transactions in this captive market, the SEC said, Paine Webber “charged customers undisclosed excessive markups or markdowns, not reasonably related to the prevailing market price.”