Brokerages Will Pay $3.64 Million to Settle Conflict of Interest Charge
Merrill Lynch & Co. and Lazard Freres & Co. will pay $3.64 million to settle allegations by the District of Columbia that the investment firms had an undisclosed conflict of interest in their financial dealings with the city, it was announced Friday.
Lazard Freres was hired by the district to act as its financial adviser, but also had a contract with Merrill Lynch to help market complex interest rate swaps issued by Merrill Lynch to Washington and other municipalities. Acting as the city’s financial adviser, Lazard had recommended the swaps, and Merrill Lynch had sold about $530 million of them between 1991 and 1992.
Washington officials asserted that the side agreement between the two firms was a conflict of interest and was not “adequately disclosed,” though the settlement also stated that the city “was informed” of the arrangement.
In a settlement reached Dec. 30 with former D.C. Mayor Sharon Pratt Kelly, the two firms denied any wrongdoing and the city agreed to release the companies from any future legal action.
But federal authorities are also investigating the matter in Washington and Massachusetts, where local authorities also had dealings with both firms.
Merrill Lynch, the nation’s largest securities firm and the largest player in the municipal finance market, is facing an increasing number of legal problems in its dealings across the country--including New Jersey, Massachusetts and Orange County, where it was the lead broker of securities that have resulted in losses of more than $2 billion.
Under the D.C. settlement, Merrill and Lazard will split the $3.64-million payment, plus an amount for the city’s legal expenses in investigating the matter, Merrill and Lazard officials said.
Mark Ferber, a partner at Lazard, who negotiated the side agreement with Merrill in 1989 to help market swaps, left the firm after the arrangement was disclosed in 1993.