Dealer Says Salomon Misled It on Improper Bid

S. G. Warburg, a government bond dealer tangled in the Salomon Bros. Inc. bidding scandal, said Sunday that it never alerted regulators to an improper bid because a Salomon executive blamed it on a clerical error.

Warburg said Salomon’s government bond chief, Paul Mozer, persuaded the firm that the bid was an honest mistake and asked Warburg to allow Salomon to work it out with Treasury officials.

Warburg officials met with U.S. Treasury investigators Thursday and Securities and Exchange Commission officials Friday to explain why it hadn’t mentioned the irregular bid before the Salomon scandal came to light.

It wasn’t until August, when Salomon disclosed the illegal bidding, that Warburg and its affiliate, Mercury Asset Management, realized that Salomon had been using its name and had never told regulators about the so-called clerical error.

The bogus bid came to light after the Treasury sent Warburg a letter explaining that bids made by Warburg and Mercury would be considered as coming from the same firm. The letter noted a $3.15-billion bid submitted by Salomon for Mercury and a $100-million bid by Warburg at February’s five-year note auction.

Mozer offered his explanation after Mercury asked him about the unauthorized $3.15-billion bid, which amounted to more than a third of the notes sold by the government at the February auction.

Mercury said it acknowledged receiving the letter from Treasury but didn’t mention the curious bid because it thought Salomon was correcting the matter with the Treasury.

“No one at Mercury or at Warburg had any reason to believe or suspect that what was described by (Mozer) as a clerical error was in fact part of a pattern of improper or unlawful activities” or that Salomon wouldn’t tell the Treasury, Warburg said in a statement.

Salomon fired Mozer as the scandal unfolded last month.

Warburg said the paper-intensive and hurried nature of government securities auctions make clerical errors fairly common, explaining why Mozer’s explanation did not arouse suspicions of impropriety.

Warburg and Mercury, whose name was also used without authorization in a December, 1990, bid, said they are considering what action they may take against Salomon.