SEC Reportedly Authorizes Suit Against Broker : Finds Evidence of Fraud at Matthews & Wright
The Securities and Exchange Commission reportedly has voted to authorize the filing of charges against Matthews & Wright Group Inc. and several of its top officers, alleging fraud and other federal securities law violations in connection with the firm’s role as underwriter of more than $1 billion in municipal bonds and as issuer of its own stock.
The action--which was taken Tuesday at a closed SEC meeting, according to unnamed sources quoted Wednesday by Dow Jones News Service--means that the agency’s commissioners agree with its enforcement staff that there is sufficient evidence to file a civil lawsuit against Matthews & Wright and several senior company officers.
Court action isn’t thought to be imminent because the commission also authorized its staff to conduct settlement negotiations with Matthews & Wright and the other involved parties.
A lawyer for Matthews & Wright said: “I’ve had discussions with the commission staff, but I can’t comment beyond that.” Bruce Hiler, an assistant director of the SEC’s enforcement division in Washington, declined to confirm or deny the SEC’s reported vote.
Matthews & Wright, a New York City bond brokerage house, has been under investigation by the SEC and other federal agencies as part of a wider probe of suspected municipal bond illegalities. The company denies any wrongdoing and insists that all its municipal bond underwritings were valid and conformed with industry practices.
Arbitrage Bonds at Issue
The SEC, in voting to authorize a lawsuit, agreed with its enforcement staff’s view that Matthews & Wright’s activities failed to comply with the anti-fraud and various other provisions of the federal securities laws. The investigation was in connection with about $1.2 billion of municipal bonds underwritten by the firm in 1985 and 1986 and with the company’s issuance of 1.5 million common shares of its own stock at $11 a share in August, 1986, when it was doing a big municipal bond underwriting business.
The probe has centered on what SEC Chairman David S. Ruder has called “arbitrage bonds,” which typically are defined as bonds sold primarily to earn investment profits without reasonable expectations of building the projects that are supposedly being financed. The SEC has subpoenaed a number of other securities firms besides Matthews & Wright in connection with the inquiry.
In the SEC’s view, the Matthews & Wright bond deals, reportedly 26 in number, do not include issues underwritten by the firm of $300 million from Guam in 1985 and $80 million from the Northern Mariana Islands in 1984, lawyers for the firm said previously. The Internal Revenue Service said last month that interest on the Guam and Marianas bonds is “not tax-exempt.” Matthews & Wright said it believes that both bond issues were validly issued and that the interest is tax-exempt.
A federal grand jury in Guam last December charged Arthur A. Goldberg, executive vice president of Matthews & Wright, with fraud, bribery and obstruction of justice in connection with an alleged nationwide bond fraud involving more than $2 billion in municipal bonds. Goldberg, who is on a voluntary leave of absence from the firm, has pleaded innocent. His trial is scheduled to begin Jan. 9 next year in Santa Ana.
Company officers included as prospective defendants in the case authorized by the SEC’s vote Tuesday, in addition to Goldberg, are Matthews & Wright Chairman George W. Benoit and the firm’s treasurer and chief financial officer, Roger J. Burns, sources said. Also included, they said, is Bernard Althoff, the firm’s general counsel.
In a prepared statement, Althoff denied Wednesday that he acted as lawyer for the company in any of the bond deals under investigation. He said he had relied on a separate bond lawyer, in an apparent reference to Edward K. Strauss, who acted as bond attorney to the firm.
Strauss pleaded guilty to a single felony count last January and is expected to be a key prosecution witness in Goldberg’s trial.
Earlier published reports have quoted federal investigators as asserting that Matthews & Wright underwrote several dozen municipal bond issues in 1985 and 1986 that were intended to raise money largely for investment rather than building and to beat the phase-in of federal curbs on such practices.
The grand jury that indicted Goldberg charged him and associate Frederick Mann with bribing former Gov. Ricardo J. Bordallo of Guam to get Bordallo’s support for the $300-million Guam housing bond issue. Bordallo was allegedly paid $70,000 in funds that were channeled to his election campaign.
The trial of Goldberg and Mann was shifted to Santa Ana from Guam because of the wide publicity in Guam that has accompanied disclosures of the allegations against the firm.
Last July, Matthews & Wright reported a $22.3-million pretax loss for fiscal 1987 and warned that the firm might be forced out of business by adverse rulings in the many pending lawsuits against it. The firm faces at least 10 lawsuits from investors and issuers of bonds that it sold in 1985 and 1986.
Matthews & Wright has acknowledged being the subject of federal grand jury investigations in New York and Pennsylvania.
