2 at Shearson Are Suspended; ConAgra Trades Being Probed : Securities: In another blow to Wall Street’s reputation, the brokerage is looking into the possibility that the stock was manipulated to prevent losses at the firm<i> .</i>
Shearson Lehman Bros. Inc. said Thursday that it suspended two senior executives on suspicion that they illegally ordered the manipulation of stock prices, delivering another blow to Wall Street’s sullied reputation.
Sources said the manipulation of ConAgra Inc.’s stock was meant to prevent Shearson, the huge New York-based brokerage and investment banking firm, from incurring losses that could have amounted to tens of millions of dollars.
In a letter to employees, Howard L. Clark Jr., Shearson’s chairman and chief executive, said he suspended Peter A. DaPuzzo, co-head of stock trading and sales, and Manny Geronimos, an executive vice president in charge of trading large blocks of stock.
“This step has been taken because serious allegations have been made that call into question the conduct of these employees,” Clark stated.
The disclosure comes on the heels of the Salomon Bros. government securities scandal, which rocked the huge market for U.S. Treasury securities and is expected to implicate other firms.
Shearson’s announcement is another black eye for the subsidiary of American Express, which has been hit in recent quarters with huge losses and hurt by bad investments, including one in failed First Capital Holdings of Los Angeles.
The latest incident related to a $143-million offering last November of new stock by ConAgra, the Omaha, Neb., agricultural products conglomerate. Shearson’s Lehman Bros. unit was the lead underwriter and sole manager of the offering, which meant it was responsible for pricing and selling the stock. It also was legally bound to buy all of the shares itself if it couldn’t find customers for the stock.
Sources close to Shearson said a curious series of trades of ConAgra stock at the end of trading on Nov. 20, the day the offering was priced, have been under investigation by the firm, the New York Stock Exchange and the Pacific Stock Exchange at least since December. Sources said senior Shearson traders apparently didn’t cooperate fully with the investigation.
But the sources said a California-based Shearson employee came forward in early August and implicated DaPuzzo and Geronimos in an alleged manipulation of ConAgra’s stock. The manipulation apparently was meant to counteract an unexpected jump in ConAgra’s stock price on the stock exchange at the end of the trading day.
DaPuzzo, 50, has been with Shearson or its predecessor firms since 1958. He is widely respected on Wall Street and has worked for numerous industry organizations. A spokesman for DaPuzzo said he is also cooperating with the investigators.
“He believes that when those matters are concluded he will have been found to have acted properly at all times,” the spokesman said.
Geronimos has been with Shearson for about a year, officials said. Ann Flannery, a lawyer representing Geronimos, said her client is cooperating fully with the investigation. “He is being completely candid with them (investigators).”
ConAgra declined to comment.
One Shearson official said Shearson’s top managers were immediately notified of the employee’s allegations and that the NYSE officials were notified within 24 hours. Sources said the firm hasn’t notified the Securities and Exchange Commission, but Shearson would not comment on any contact with the SEC.
Clark’s letter said that around Aug. 20, the firm hired outside legal counsel to help conduct an internal investigation. Sources said the investigation turned up enough corroborating evidence to merit suspending the two executives.
The alleged manipulation occurred Nov. 20, the day the offering of 4 million new ConAgra shares was priced, sources said. The stock had remained fixed virtually all day at $33.25. Because ConAgra’s stock price didn’t appear to be moving, Lehman Bros. began to book orders from customers to buy the stock at $33.25.
Lehman Bros.’ underwriting agreement called for the stock to be priced at ConAgra’s closing price on Nov. 20. However, just after trading on the Big Board closed, a final trade was reported on the tape, unexpectedly boosting the closing price to $33.375. The jump alarmed Lehman Bros. traders. With customer orders already booked at a lower price and the market unsteady because of developments in the Persian Gulf, the firm feared that it wouldn’t promptly be able to sell the huge block of stock at the higher price.
Sources said the California-based Shearson employee told executives that a senior Lehman Bros. trader ordered him to manipulate the stock’s price downward on the Pacific exchange, which closes half an hour after the Big Board.
“This person is alleging that a senior person in New York (at Lehman Bros.) told this person to close the stock down an eighth ($0.125) and to do it away from the firm,” said a source knowledgeable about the probe. A broker on the floor of the Pacific exchange sold short 100 ConAgra shares, causing the stock to drop back by $0.125 to $33.25, the price at which Lehman customers had signed up to buy the offering.
The trade was immediately regarded as suspicious by exchange officials and eventually was canceled. But sources said it enabled Lehman to sell the stock to clients at the lower price. Because of uncertainty over the closing price, sources say Shearson paid ConAgra $500,000 under terms of its underwriting contract. But the sources said Shearson avoided a potentially much larger loss.
* NO COMPENSATION
Salomon Bros. won’t give four executives who quit compensation. D2
