Salomon to Pay Fine to Agency
Salomon Inc., already embroiled in a scandal for breaking U.S. Treasury auction rules, said Friday that it would pay a penalty to the Federal Home Loan Mortgage Corp. to avoid sanctions in a separate debt scandal sweeping Wall Street.
The fine, which Salomon said it would pay Friday, amounts to 20% of the fees the firm received for underwriting certain debt issued by the agency, known as Freddie Mac.
Freddie Mac said Thursday that it was imposing fines, totaling roughly $1 million, on 18 firms that were underwriting its debt sales. The agency fined firms that it said had submitted falsified information in the sales.
Freddie Mac is a government-sponsored enterprise that buys mortgages from lenders and repackages them into mortgage-backed securities to sell to investors.
The agency said any dealer refusing to accept its sanctions--including probation and fines--would be terminated from dealing in its securities.
Salomon acknowledged infractions in mid-August, the same time it admitted violating the rules at government bond auctions.
Other debt-selling agencies--the Federal National Mortgage Assn., or Fannie Mae, and the Student Loan Market Assn., or Sallie Mae--are also looking into trading abuses.
“We are still in the process of our inquiry,” said David Jeffers, spokesman for Fannie Mae, referring to its investigations into various firms.
“We won’t hesitate to administer sanctions, up to and including expulsion if it is warranted,” Jeffers said.
After an inquiry in September, Jeffers said, Fannie Mae learned about “lies, inaccuracies and misinformation” in written reports that follow its bond sales.
These included reports from dealers about how many bonds they sold.
Freddie Mac said that in future it will require members of its selling group to provide assurances that they are not violating rules.
Regulatory discipline has become a fact of life in the once wide-open U.S. government bond market, after revelations Salomon had taken more than its 35% share of some Treasury auctions.
Freddie Mac said it welcomed the decision by Salomon to accept the agency’s terms and pay a penalty on infractions on sales of its debt.
