Salomon Pins Scandal Blame on Ex-Executive
Salomon Bros. Inc. wrapped up an internal investigation of its wrongdoing in Treasury auctions Wednesday with a final report that sources said implicates no one new while heaping blame on the fired head of its government securities desk, Paul W. Mozer.
Salomon spokesman Robert F. Baker Jr. declined to comment on Mozer but said, “The investigation has exonerated the other people on the government desk,” besides the four implicated so far.
The firm also disclosed in a written statement that it had uncovered evidence of a possible eighth instance of traders placing a fraudulent bid in a Treasury auction by falsely using a customer’s name. Baker declined to give details. He said the evidence, along with full details of the final report, is now being presented to federal investigators and regulatory agencies.
Salomon has admitted that in several auctions it covertly violated the regulation that limits a firm from controlling more than 35% of U.S. Treasury issues. The firm has also acknowledged repeatedly submitting false bids since late 1990 in the names of customers who hadn’t requested them.
The firm fired Mozer and his deputy, Managing Director Thomas Murphy, on Aug. 17, and suspended two lesser officials on the government desk, trader Christopher Fitzmaurice and clerk Henry Epstein. Salomon Chairman John H. Gutfreund and three other top officials at the firm resigned after disclosure that they had learned of at least some of the wrongdoing shortly after it occurred but had failed to notify regulators for months.
Sources said the investigation’s findings are consistent with a view held by many Salomon employees that the wrongdoing came about mainly because of a personal vendetta by Mozer against Treasury officials. Those officials imposed new rules in July, 1990, in an effort to curb what they viewed as improper efforts by Salomon to win for itself inordinate amounts of securities at Treasury auctions.
With the internal investigation concluded, “We now know who did these things--Mozer,” said a source close to the firm. When the Treasury “changed the rules, he snapped. That started a spiral of self-destructive behavior with tragic results for himself and the firm,” the source said.
Mozer’s lawyer, Lee S. Richards III, as on earlier occasions failed to return calls seeking comment. A secretary in his office confirmed late Wednesday that Richards had received the telephone messages.
It remains to be seen, however, whether investigators from the Justice Department and the Securities and Exchange Commission agree with Salomon’s conclusion that Mozer was mainly responsible for the firm’s wrongdoing. Federal investigators are pouring over voluminous records subpoenaed from Salomon and other firms and so far have declined to comment on what they’ve found.
