Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, January 17, 1992 TAG: 9201170124
SECTION: BUSINESS PAGE: A-9 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
BOND SCANDAL NIPS 100 FIRMS
Nearly 100 of the nation's top banks and securities firms will pay a total of almost $5.2 million in fines for widespread inflating of customer orders for quasi-government agency bonds, federal regulators said Thursday.The companies, which neither admitted nor denied wrongdoing, agreed to halt any violations in the sale of bonds issued by government-sponsored agencies such as the Federal National Mortgage Association, called Fannie Mae.
The banks and securities firms also agreed to correct record-keeping procedures and to pay $5.16 million in fines to the government.
Some of the nation's largest banks - Bank of America and the Mellon Bank - and some of the biggest names on Wall Street - Goldman, Sachs & Co. and Nomura Securities International - were among the 98 included in the settlement.
Those doing business in Virginia included Central Fidelity Bank; Crestar Bank; Kidder, Peabody & Co. Inc.; Merrill Lynch Government Securities Inc.; NationsBanc Capital Markets Inc., and PaineWebber Inc.
"We uncovered a practice that was nearly universal," Securities and Exchange Commission Chairman Richard Breeden told a news conference.
With the exception of one small firm that is still under investigation, Breeden said, all of the firms accused of wrongdoing agreed to the settlement.
The action is separate from the ongoing government probe of Salomon Brothers Inc.'s actions in the Treasury bond market. A joint regulators' report to Congress on that case is expected next week.
The firms and banks involved were bidding for the bonds of other government-sponsored agencies: the Federal Home Loan Mortgage Corp., or Freddie Mac; the Federal Farm Credit Banks Funding Corp.; the Federal Home Loan Banks, and the Student Loan Marketing Association, or Sallie Mae.
Collectively, those organizations are known as government-sponsored enterprises - private corporations created by Congress to facilitate lending for numerous "socially important" purposes including education, agriculture and housing.
The government alleged that the banks and securities companies provided the agencies with inaccurate information concerning their sales of the securities or the sizes of orders to obtain a bigger share of the bonds offered by the agencies.
Breeden said the companies had maintained "a phantom set of records."
The settlement was announced by the SEC, which oversees the nation's securities markets, and the Office of the Comptroller of the Currency and the Federal Reserve Board, which regulate banks.
"It is essential that the public be able to have confidence in the integrity of the government securities markets," said Robert Clarke, the comptroller of the currency, who oversees nationally chartered banks.
The fines ranged from $5,000 to $100,000, with most major concerns agreeing to $100,000 fines.
The investigation grew out of the Treasury Department bond-trading scandal involving Salomon, which was not part of the settlement. Breeden said that issue would be included in the continuing Salomon case.
Salomon, one of the nation's biggest government securities traders, shocked Wall Street in August when it admitted making illegal bids for such bonds at several Treasury auctions, which finance the nation's $3.5 trillion debt.
The SEC's investigation into Salomon widened after a large number of banks and securities companies acknowledged having inflated their customer orders when bidding for such securities.