Bond Traders Settle Fraud Charges

Bond dealer Matthews & Wright Group Inc. and two of its officers Thursday settled civil securities fraud and other charges related to the underwriting of more than $1 billion in municipal bonds, the Securities and Exchange Commission said.

Without admitting or denying guilt, Matthews & Wright, its president and chairman, George W. Benoit, and Roger J. Burns, its chief financial officer, have agreed to settle civil charges that they violated anti-fraud and false reporting provisions of federal securities laws.

Under the settlement, Matthews & Wright will give up its broker-dealer license and agree to avoid future securities violations.

Benoit will be barred from the securities business for at least four years and Burns will be barred for at least two years.

The settlement is subject to approval by a federal district judge. It was filed today in U.S. District Court in Manhattan.

Two other men, Matthews & Wright executive vice president Arthur Abba Goldberg and outside counsel Bernard M. Altoff, were not parties to the settlement, and civil charges are pending against them, the SEC said.

The SEC complaint charged that the four individuals and Matthews & Wright carried out a fraud scheme to underwrite tax-exempt municipal securities without adequate resources “through a series of sham closings.”

Most of the charges in the government’s case stem from about 25 municipal bond deals in 1985 and 1986. The firm has been out of the bond underwriting business for more than two years since its legal troubles began.

The charges stemmed from a broader government probe of up to $12 billion in municipal bond offerings by several firms, to determine if the securities were sold in compliance with laws on bond transactions and tax free securities.

The investigation included cases in which issuers may have sold tax-free bonds on behalf of municipalities for unrealistic projects and channeled the proceeds into more lucrative investments, such as stocks or bonds with higher yields.

This would enable the bond underwriters to pay the interest to bond holders and still collect huge profits, some of which would go to the municipalities as compensation, the sources said.

The probe prompted concerns among the thousands of municipalities that depend on such bonds to raise money for local projects, and among investors nationwide who bought the securities on the assumption they met criteria for generating tax-free interest.