Other False Bids Surface at Salomon
Salomon Bros. Inc.’s list of admitted wrongdoing grew Friday, as the firm disclosed two additional instances of fraudulent bids in Treasury auctions and said it may discover more skeletons in its closets as investigations continue.
Salomon said the newly disclosed incidents involved bids falsely submitted in the names of customers, evidently hiding the fact that the firm was trying to obtain additional government notes or bonds for itself.
However, Salomon said the two episodes didn’t involve violations of the Treasury’s 35% rule, which limits individual firms to buying no more than 35% of the securities in an auction.
The latest disclosure sent Salomon’s battered stock even lower, down 25 cents Friday to $22.50 in New York Stock Exchange trading. It fell $1.25 Thursday on word that the firm had been forced to sell big blocks of securities to raise cash.
Salomon’s stock briefly hit $20.00 Friday, a new low for the year. Friday’s closing price marks a decline of more than 39% from $36.625 on Aug. 8, just before the scandal became public.
Salomon declined to identify the customers whose names were falsely used in the two bids and would not say when the bids had been submitted. The firm said in a statement that Justice Department lawyers had asked it not to make details public “to avoid jeopardizing or in any way compromising the investigations that are currently under way.”
However, a London spokesman for S. G. Warburg Group PLC said Salomon confirmed a report that one of the false bids used the name of a Warburg subsidiary. The spokesman, however, said Warburg wasn’t able to obtain specifics. Salomon had earlier admitted a separate incident in which it made a false bid in the name of Mercury Asset Management Co., a Warburg unit.
Since mid-August, Salomon has admitted a series of violations in Treasury auctions that occurred between December, 1990, and last May, including several instances in which it said it used illegal and covert methods to buy more than the maximum 35% allotment.
In a May auction of two-year notes, Salomon and its customers ended up controlling 94% of the securities. The “squeeze” forced other investors to turn to Salomon and pay a higher-than-expected price.
The admissions led to the resignations of three top executives, including Chairman John H. Gutfreund, and the firing of the firm’s two top government securities traders.
The firm said it learned of the two additional false bids only “after receiving documentation from governmental authorities that was not in the files of Salomon.” In its statement, the firm also said that “it seems to us likely that still other instances of similar behavior will be uncovered in the future through our internal review or by the investigating authorities.”
Salomon said: “We have no reason to believe” that the two false bids involved Salomon employees other than those already publicly implicated in the wrongdoing.
