SEC Is Reported Probing Donaldson, Lufkin Unit

Donaldson, Lufkin & Jenrette Securities Corp.’s Pershing division is under investigation for possible misuse of customer shares that may have earned it $1 million a year in profits, Business Week reported Thursday.

In an article in its Oct. 24 edition titled “Is a New Scandal Building on Wall Street?” the magazine said the Securities and Exchange Commission and New York Stock Exchange were investigating allegations by former Pershing employees that the firm had taken advantage of access to customer securities to improperly trade them.

The magazine said one former employee, Thomas Cusati, professed to have direct knowledge of abuse of customer securities since 1985. It said he was fired after disputes with his superiors.

“His charges raise the prospect of still another firm being accused of officially sanctioned misconduct, three years after the Street was rocked by E. F. Hutton & Co.’s guilty plea to charges arising from a check-kiting scandal,” the magazine said.

SEC spokeswoman Mary McCue said she had no comment on the Business Week story. The enforcement agency does not comment on investigations. New York Stock Exchange spokeswoman Sharon Gamsin also declined to comment.

Business Week quoted Cusati as saying he had brought the improper trading to the attention of his boss and the Equitable Life Assurance Society, the parent of Donaldson Lufkin & Jenrette, last June.

The magazine quoted officials of Donaldson and Equitable as saying internal investigations were under way into Cusati’s assertions.