More Bad News for Salomon

Salomon Bros. Inc. got more bad news Thursday when the Securities and Exchange Commission revealed that it is looking into whether the brokerage manipulated the foreign currency market.

Salomon is under investigation by the SEC, the Justice Department and the New York district attorney for submitting phony bids at U.S. Treasury Department auctions of government debt and driving up prices for its own benefit.

SEC Chairman Richard C. Breeden told a House Ways and Means subcommittee the investigation into Salomon’s foreign exchange operations centers on allegations that the company sought to make a killing in trading currencies by trying to corner the market in certain government securities through its phony bids.

The scandal has shaken Wall Street, raised questions about the ability of the once-mighty Salomon to survive and prompted a wholesale review of the way the government sells more than $1 trillion in debt per year.

Deryck Maughan, who became Salomon Bros.’ chief operating officer last month as the company sought to clean house after the scandal, told the panel that he doubted that the phony bids could have been used to manipulate the currency market.

Maughan maintained that the dollar tends to react to general movements in U.S. interest rates and not to changes in yields on any one specific government security.

Robert Denham, Salomon’s chief legal council, said the company is carrying out an internal investigation of a possible link between its bond and currency operations.