WASHINGTON -- Salomon Brothers Inc. has agreed to pay $290 million in penalties and restitution to settle federal civil charges it fraudulently purchased Treasury securities and doctored its books to hide the transactions, the government announced Wednesday.
'Tampering with the market is a very serious problem and it merited a very serious penalty,' said Richard Breeden, chairman of the Securities and Exchange Commission.
Salomon was charged with submitting 10 false bids between August 1989 and May 1991 for a total of $15 billion.
Salomon said it only earned $5 million from the improper bids, but Breeden said the actual amount was 'significantly higher than the firm suggested.'
The investigation of Salomon was launched last summer after the firm admitted to falsifying customer orders and bidding beyond government limits in Treasury auctions. The Treasury markets for the April and May two-year notes were squeezed when Salomon exceeded the 35 percent limit for a single broker.
The SEC conducted the investigation in collaboration with the Treasury Department, the Federal Reserve and the Justice Department. The settlement, which Breeden said wrapped up the investigation of Salomon, involved no criminal charges.
Breeden said criminal charges were not warranted because of action taken by the new Salomon management to correct the wrongdoing.
In addition to the fines, Salomon was suspended from engaging in transactions with the Federal Reserve Bank of New York for 60 days. The Treasury Department last August suspended Salomon from trading government securities on the behalf of customers. Treasury also said it will lift its suspension in 60 days.
Of the $290 million settlement, $100 million will be placed in a claims fund to pay compensatory damages sought by Salomon's customers.
Another $122 million will be paid to the Treasury as civil fines under the securities laws. Salomon also will pay $68 million in fines and forfeitures to settle claims with the Justice Department.
'Salomon's numerous violations of the securities laws were extremely serious and involved huge amounts of securities purchases in a wrongful manner,' Breeden said.
'Salomon's pattern of submitting false bids created a risk to the integrity of the government securities market, which is amarket on which the federal government, and ultimately all federal taxpayers depend.'
The settlement also charged Salomon with failing to adequately supervise the head of its government bond trading, Paul Mozer. Salomon additionaly was charged with violating disclosure requirements of the federal securities laws by falsifying books and records and failing to report the wrongdoing to authorities in a registration statement.
Salomon also agreed to SEC language not to violate securities laws in the future.
The Internal Revenue Service is still investigating Salomon for back taxes owed on the fradulent trades, Breeden said.
The trading of Salomon stock on the New York Stock Exchange was halted Wednesday morning and resumed at 1:50 p.m. Salomon stock was up 2 to 33 in late trading.
