Chief to Stay Till Salomon Probe Ends : Wall Street: Warren Buffett told securities administrators he plans to remain until regulators complete their investigation, which could take two years.
Pleading the case of troubled Salomon Inc., Warren Buffett told state securities administrators here Monday that he plans to stay on as chairman until federal and state regulators have completed their investigations of the securities firm.
The probes of alleged trading violations in U.S. Treasury securities by Salomon under way by the Securities and Exchange Commission, state regulators, the U.S. Justice Department, the Treasury Department and the Federal Reserve Bank could last up to two years.
Buffet, appearing at the North American Securities Administrators Assn. convention here, also said the firm deserved to survive because of the housecleaning and controls he has instituted in the past two months.
Salomon’s problems stem from disclosures that the firm’s bidding on Treasury issues improperly exceeded the 35% maximum allowed. The company made the trades by making unauthorized bids in the name of clients.
A crucial ruling is due soon from the Federal Reserve Bank of New York as to whether Salomon Bros., the parent firm’s securities trading arm, will keep its status as primary dealer of U.S. Treasury securities. Analysts say loss of the primary dealership would be a major blow and could lead to the firm’s failure.
Salomon Chief Counsel Robert Denham said Monday that the firm will soon release a report outlining how Salomon’s trading activities had impacted the Treasury markets, including information on whether the firm’s activities constituted a cornering of the market, causing retail investors to pay more for U.S. Treasury securities than would have otherwise been the case.
Buffett took over the reins of the company on Aug. 18, shortly after the scope of the firm’s trading improprieties become public, and he immediately undertook to restore public confidence in the firm. He said he “deputized” each of Salomon’s 8,000 employees as compliance officers and urged them to contact him directly with knowledge of impropriety.
Through his Berkshire Hathaway investment company, Buffett in 1987 invested $700 million in Salomon, which is convertible to a 13% equity ownership stake.
In assessing the damage the scandal has done to Salomon, Buffett said an unspecified number of municipal entities have stopped doing business with it, but that 96 of Salomon’s 100 largest pre-scandal customers are still with the firm. Buffett noted that Salomon’s stock market value has plummeted by $1 billion since the scandal broke.
Acknowledging concerns that Salomon’s actions had caused “real damage” to the integrity of the U.S. Treasury markets, Buffett nevertheless argued that Salomon be allowed to continue trading Treasury securities in the market.
“It makes no sense to penalize 8,000 employees of Salomon for the actions of eight,” Buffett said, referring to the number of Salomon managers he said were involved or who were aware of the firm’s improper trading schemes. He said internal investigations had turned up no “widening” of the improper activities beyond the handful of executives already implicated.
Buffett said he has made significant reductions in the “over-leveraged” company’s balance sheet, reducing assets from $149 billion to $100 billion in two months. The firm now is strong with about $4 billion in equity, Buffett said.
He laid the blame for most of Salomon’s troubles at the feet of Salomon’s chief trader, Paul Mozer, who was motivated, Buffett said, not by greed but by the need to “best the U.S. Treasury.”
In other developments, the Dart family of Florida revealed that it has acquired a 5.74% stake in Salomon but said it did not plan any active role in the scandal-plagued securities firm.
In a filing with the SEC, the Dart Financial Corp. and related entities said the purchases began Aug. 16, the day Salomon Chairman John H. Gutfreund and another top executive announced their resignations.
Dart Financial is the investment arm of Dart Container Corp., a Sarasota, Fla., maker of Styrofoam and plastic cups. In the SEC filing, made Friday, the Darts said they had acquired the Salomon stake for investment purposes only.
Federal law requires investors to make a public disclosure when they acquire more than 5% of a company.
Meanwhile in Washington, Rep. Edward J. Markey (D-Mass.) introduced a bill that would give the SEC more power to police the government securities market. The bill is designed to curb abuses such as the Salomon bond trading scandal.
The bill would require dealers and other firms to disclose big trades in government securities to regulators and also make sure they have adequate internal controls to comply with the law. The proposal would be the the first broad legislative package to be introduced since the Salomon scandal became public.
