December 7, 1990, New York Times, Vice Chairman Named At Salomon Brothers, by H. J. Maidenberg,
August 20, 1991, The Bond Buyer, Salomon, other traders show caution in face of coup reports from U.S.S.R. by Kathie O'Donnell,
August 20, 1991, The Bond Buyer, Soviet coup roils market, boosts prices at short end, by Susan Kelly,
August 20, 1991, The Boston Globe, Q&A: What the Salomon Bros. scandal means, by Jolie Solomon, Globe Staff,
August 20, 1991, The Boston Globe, Capitalist pageant, communist plague, by David Warsh, Globe Staff,
August 20, 1991, The Boston Globe, Council candidate attacks rival over his tenure at Salomon Inc., by Michael Rezendes, Globe Staff,
August 20, 1991, The Boston Globe, Salomon tries to mop up the damage,
August 20, 1991, The Washington Post, Government Bond Market Probe Expanded; Investigation Goes Beyond Salomon Brothers Scandal, Sources Say, by Kathleen Day,
August 20, 1991, Chicago Sun-Times, Salomon loses California pension fund,
August 20, 1991, Chicago Sun-Times, New heads for Salomon operations,August 20, 1991, Chicago Sun-Times, A Russian bear market // Dow opens with triple-digit skid; calmer by close, by Greg Burns,
September 11, 1991, New York Times, Salomon Executive Has an Agenda for Cleaning Up the Desk, by Kenneth Gilpin,
September 11, 1991, New York Times, Educating Young Mr. Rosenfeld, by Kenneth Gilpin,
September 11, 1991, New York Times, Salomon Trader in Scandal: 10 Million Pay in 3 Years,
September 24, 1991, New York Times, Salomon Plans Reserve For Fines and Lawsuits, by Kurt Eichenwald
September 28, 1991, New York Times / Bloomberg Business News, Fees Decline at Salomon,
September 29, 1991, New York Times, Forcing Salomon Into Buffett's Conservative Mold, by Floyd Norris,
October 1, 1991, New York Times, Another Strong Quarter for Wall St. Fees, by Kurt Eichenwald,
October 2, 1991, New York Times, Successful Stock Sale By Chrysler, by Doron P. Levin,
October 4, 1991, New York Times, Credit Markets; Salomon Will Sell Berkshire Notes, by Kurt Eichenwald,
October 4, 1991, New York Times, Credit Markets; Salomon Will Sell Berkshire Notes, by Leslie Wayne,
October 5, 1991, New York Times, Salomon Agrees to Pay Freddie Mac Fine, by Leslie Wayne,
October 21, 1991, New York Times, Bank Sues Salomon and Travelers, by Alison Leigh Cowan,
October 22, 1991, New York Times, No New Salomon Fraud,
October 22, 1991, New York Times, No New Salomon Fraud, by Alison Leigh Cowan,
October 23, 1991, New York Times / Associated Press, Credit Offer To Salomon,
October 27, 1991, New York Times, Correction, by Stephen Labaton,
October 31, 1991, New York Times, Rite Aid Seeks to Buy Revco As Salomon Settles Lawsuit, by Kurt Eichenwald,
December 20, 1991, New York Times, California Lifts Salomon Ban, by Kurt Eichenwald,
December 23, 1991, New York Times, A Salomon Client Is Back, by Kurt Eichenwald,
December 26, 1991, New York Times, 2d Lawyer for Mozer,
January 17, 1992, New York Times, California Ends Salomon Ban, by Stephen Labaton,
March 21, 1992, New York Times, The Fed Is Investigating Dealings in U.S. Note, by Kenneth N. Gilpin,
April 14, 1992, New York Times, Salomon to Sell 42% Stake In Parent of Grand Union, by Adam Bryant,
June 12, 1992, New York Times, Salomon Names Co-Head of Equities Unit, by Kurt Eichenwald,
July 31, 1992, New York Times, Credit Markets; Open Treasury Auctions: Years Away, by Jonathan Fuerbringer,
September 8, 1992, New York Times, Salomon Still Struggling To Diversify Its Business, by Kurt Eichenwald,
September 30, 1992, New York Times, Tax Issues For Salomon,
December 4, 1992, New York Times, Front Page Caption: A Wall Street Ban,
January 5, 1993, New York Times, Salomon Settles 2 Pay Claims, by Kurt Eichenwald,
January 6, 1993, New York Times, Salomon Reinstates Trader, by Kurt Eichenwald,
January 7, 1993, New York Times, Economist Post Filled By Salomon Brothers, by Jonathan Fuerbringer,
January 8, 1993, New York Times, Guilty Plea In Salomon Case Set, by Kenneth N. Gilpin,
January 16, 1993, New York Times, 2 Key Executives Resign From Salomon Brothers, by Jonathan Fuerbringer,
January 20, 1993, New York Times, Corrections,
February 9, 1993, New York Times, Newly Formed Salomon Unit Receives Top Credit Rating, by Saul Hansell,
March 9, 1993, New York Times, Ford Motor Unit Prices Notes, by Saul Hansell,
March 21, 1993, New York Times, A Bond That Only a Gambler Would Consider, by Floyd Norris,
March 21, 1993, New York Times, Profile/John F. H. Purcell; Salomon's Guru On the Third World, by Jeanne B. Pinder,
March 25, 1993, New York Times, Company News; 2 Top Bond Traders May Return to Field, by Saul Hansell,
April 5, 1993, New York Times, U.S. Brokers Go Long Traders, by Kevin Murphy,
June 21, 1993, New York Times, Citicorp Block Trade, by Saul Hansell,
July 13, 1993, New York Times, A Top S.E.C. Regulator Takes Post at Salomon,
November 24, 1993, New York Times, Treasury Market Bill Is Passed, by Jonathan Fuerbringer,
December 31, 1993, New York Times, Trader Settles S.E.C. Suit, by Susan Antilla,
March 24, 1994, New York Times, Lomas Financial Hires Salomon to Explore Sale, by Susan Antilla,
May 1, 1994, New York Times, Wall Street; Throwing the Book at the Boss,
July 27, 1994, New York Times, Settlement By Salomon by Keith Bradsher,
August 21, 1994, New York Times, A Sad Tale Of Penalties For Failure, by Floyd Norris,
September 1, 1994, New York Times, Reports Imply Somewhat Faster Inflation, by Robert D. Hershey Jr,
September 18, 1994, New York Times, Wall Street; Salomon's Hong Kong Hangover, by Susan Antilla,
December 15, 1994, New York Times, Salomon Will Start Selling Orange County Debt Today, by Saul Hansell
December 16, 1994, New York Times, S.E.C. Begins to Investigate Orange County Board's Role, by Sallie Hofmeister,
December 29, 1994, New York Times, Orange County Seeks Advice on Bond Sales, by Sallie Hofmeister,
January 4, 1995, New York Times, Orange County Sales Set,
January 17, 1995, New York Times, Merrill Lynch Is Facing Challenge to Credibility, by Laurence Zuckerman,
February 14, 1995, New York Times, After Bad Year, Two Firms Will Cut Investment Staffs, by Kenneth N. Gilpin,
February 28, 1995, New York Times, The Collapse of Barings; Men Who Shook the Foundations, by Kurt Eichenwald,
March 10, 1995, New York Times, Firms Agree to U.S. Review Of Derivatives Operations, by Saul Hansell,
March 11, 1995, New York Times, U.S. Agency Criticizes 2 Big Wall Street Firms, by Peter Truell,
March 25, 1995, New York Times, Securities Firms Seeking to Turn Derivatives Debacle Into Profits, by Peter Truell,
March 29, 1995, New York Times, Market Place; The S.E.C. says a broker helped friends and relatives be insiders., by Susan Antilla,
April 15, 1995, New York Times, Canada's Borrowing, With Its Fat Fees, Lures Wall Street, by Clyde H. Farnsworth,
June 6, 1995, New York Times, S.E.C. Said to Prepare Inside-Trading Case, by Stephanie Strom,
June 16, 1995, New York Times, S.E.C. Accuses an Analyst and His Father of Insider Trading on Merger Plan, by Stephanie Strom,
July 12, 1995, New York Times, Salomon Says It Will Report Another Loss, by Peter Truell,
July 29, 1995, New York Times, French Investigation Aims at Salomon and Swiss Bank, by Peter Truell,
August 1, 1995, New York Times, Assembling a Blockbuster Pact At Minimum Professional Wage, by Stephanie Strom,
December 1, 1995, New York Times, Retailers Had Weak Sales In November, by Jennifer Steinhauer,
December 5, 1995, New York Times, Market Place;Last Big Wall St. Bear Defects to Optimists, by Floyd Norris,
January 24, 1996, New York Times, Salomon Earnings Declined From 3d Quarter, by Stephanie Strom,
February 4, 1996, New York Times, The Siskel and Ebert of Telecom Investing, by Mark Landler,
March 27, 1996, New York Times / Bloomberg Business News, Merger Expert Quits Salomon
April 30, 1996, New York Times / Bloomberg Business News, COMPANY NEWS; RHODES CONSIDERS SALE OF COMPANY AND HIRES SALOMON
May 4, 1996, New York Times / Bloomberg Business News, Corrections
January 18, 1997, New York Times, Fidelity Forms An Alliance With Salomon, by Peter Truell,
February 6, 1997, New York Times, Wall Street's Search for the Perfect Blend, by Charles V. Bagli,
February 14, 1997, New York Times, Even Bullish Analysts Are Looking Sheepish, by Jonathan Fuerbringer,
April 8, 1997, New York Times, Salomon Trader Was Paid $31.45 Million,
May 14, 1997, New York Times, Baron Firm and 13 Charged With Cheating Thousands, by Peter Truell,
September 25, 1997, New York Times, A Wall Street Behemoth: The Strategist; A Deal Maker's Dream Deal, by Leslie Eaton,
October 3, 1997, New York Times, For Salomon, as Adviser, Millions Plus Revenge, by Mark Landler,
November 26, 1997, New York Times, Market Place; Lessons of Boesky and Milken Go Unheeded in Fraud Case,
January 17, 1998, New York Times, Key Figure in Salomon Rescue Is Leaving for Big Hedge Fund, by Peter Truell,
January 29, 1998, New York Times, Is There Life After Wall Street?; Tales of the Players Who Quit the Game, by Leslie Eaton,
May 3, 1998, New York Times, A Fallen King In Search of a Lesser Throne, by Peter Truell,
May 7, 1998, New York Times, Leadership Plan for Citigroup Tilts in Favor of Travelers,
June 19, 1998, New York Times, A Media Specialist Is Leaving Salomon,
August 7, 1998, New York Times, Salomon Smith Barney Executive Joins Goldman, by Laura M. Holson,
August 14, 1998, New York Times, Salomon Executives To Leave the Firm,
September 11, 1998, New York Times, Malaysia Hires Salomon as Bank Advisor,
October 1, 1998, New York Times, ABN Amro Is a Primary Treasuries Dealer
October 2, 1998, New York Times, Fallen Star: The Partners; After Salomon, Friends Built And Lost 'Dynastic Wealth', by Peter Truell,
October 11, 1998, New York Times, Long-Term Capital: A Case Of Markets Over Minds, by Douglas Frantz and Peter Truell,
March 30, 1999, New York Times, 2 Salomon Executives Shifting to London,
April 21, 2000, New York Times, Ex-Bear Stearns Executive Is Barred From Securities Industry,
August 12, 2001, New York Times, Investing With: Matthew P. Ziehl; Salomon Brothers Small Cap Growth Fund, by Douglas Frantz and Peter Truell,
January 27, 2002, New York Times, Update / Lewis Ranieri; A Mortgage Man Charts New Seas, by Riva D. Atlas,
June 19, 2002, New York Times, Citigroup Fills International Post,
March 9, 2003, New York Times, Investing With: Peter J. Wilby; Salomon Brothers High Yield Bond Fund, by Carol Gould,
October 20, 2004, New York Times, Citigroup Forces Resignations of 3 Senior Executives,
September 28, 2004, New York Times, Citigroup Job Changes May Be Dress Rehearsal For Top Post in Future,
May 28, 2004, New York Times, Fed Assesses Citigroup Unit $70 Million In Loan Abuse,
October 3, 2004, New York Times, Openers: Refresh Button; New Universe, Same Master, by Robert Johnson,
October 31, 2006, New York Times, A $700 Million Hedge Fund, Down From $3 Billion, Says It Will Close, by Landon Thomas Jr,
February 24, 2009, New York Times, Fed Chairman Says Recession Will Extend Through the Year, by Catherine Rampell and Jack Healy,
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August 20, 1991, The Bond Buyer, Salomon, other traders show caution in face of coup reports from U.S.S.R. by Kathie O'Donnell,
Mikhail Gorbachev's ouster saw some in the corporate bond markets digging in to watch the situation unfold, sources said yesterday.
Among those waiting was Salomon Brothers Inc., poised at mid-afternoon to price Florida Power & Light Co.'s $150 million of first mortgage bonds due 2021.
"Basically, we are looking for a little more stability," said Andy Macchia, a Salomon Brothers vice president.
The issue, subsequently priced at approximately 3:15 p.m., eastern standard time, carried a coupon rate of 9 1.8 and a spread of 112 basis points over 30-year Treasuries. The bonds mature in August 2021.
The issue is nonrefundable for five years. Moody's Investors Service Inc. rated it A-2, while Standard & Poor's Corp. assigned it an A rating.
Also yesterday, PepsiCo Inc., another investment grade issuer, priced its $250 million of notes due 1996.
The notes carried a 7 7/8% coupon and were priced at 99.733 to yield 7.94% or 70 basis points over comparable Treasuries.
The junk bond market also displayed caution following the news from the Soviet Union.
"We're all standing back and watching the removal of Gorbachev," said Kingman Penniman, a senior vice president at Duff & Phelps/MCM. INvestors did not want to panic and sell, but were not jumping into the market either, he said.
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August 20, 1991, The Bond Buyer, Soviet coup roils market, boosts prices at short end, by Susan Kelly,
The overnight coup that toppled Soviet leader Mikhail Gorbachev caused a sharp, brief spike in Treasury prices yesterday morning, as investors sought refuge from political upheaval in the safe haven of the U.S. government bond market.
The price gains faded quickly as the higher encouraged heavy retail selling and the stock market's restrained reaction discouraged traders.
By late in the afternoon, Treasury bills and short-term notes were slightly higher, and the 30-year bond was of 1/4 point to yield 8.10%. Early in the session, the long bond has been up more than 1 1/2 points, where it yielded 7.92%.
Although the initial flight-to-quality reaction subsided, analysts said the political upheaval in the Soviet Union would dominate Treasury trading this week.
If the situation there deteriorates, it would boost short-term prices, but economists said it was not clear how Soviet problems would affect the long end.
Long-term prices would suffer if Cold War tensions were renewed between the Soviets and the U.S. suggesting the need for more U.S. military spending and resulting in even higher budget deficits, or if a disruption of Soviet oil production increased inflationary pressures.
On the other hand, if the United States loses its export markets in the Soviet Union, that could add to the economy's problems, which would be a plus for the long end.
Short-term Treasury prices began to rise overnight in Tokyo after the Soviet news agency, Tass, announced that a state of emergency had been declared and that Soviet Vice President Gennady Yanayev had replaced Mr. Gorbachev for "health reasons."
A statement from the State Committee for the State of Emergency, which includes officials from the Soviet army and the KGB, said Mr. Gorbachev's reforms had entered "a blind alley" and "a mortal danger" was looming over Soviet Union.
While the short end improved in Tokyo, the 20-year bond initially sold off. But during the London morning session, the long end made a comeback as short-term prices continued to rally, and as New York traders came in, bond prices soared.
The buying of Treasury bills and short-term notes was a classic flight-to-quality reaction, traders said.
"Greed and panic rule this market, and you saw a good example of panic today," a note trader said.
But some questioned why long-term prices, already at high levels, rose as much as they did. Flight-to-quality buying usually occurs at the short end, which is more liquid and less risky than the long end.
In any case, the gains didn't last long.
Traders said they saw a lot of selling as dealers and retail investors took their profits from the earlier run-up.
"At 8%, investors will sell long bonds and buy something else," a note trader said.
And more selling occurred when U.S. stock prices stabilized in mid-morning, disappointing participants who had hoped the U.S. stock markets would be hit as badly as stock markets overseas.
The Nikkei index of Japanese stocks dropped 6% overnight, and the DAX index of German stocks fell 9.4%.
The Dow Jones Industrial Average was off more than 100 points during the morning, but came off its lows to hover 60 to 70 points below Friday's close for most of the day. It closed 69.99 points lower, at 2,898.03, which is only a 2.4% decline.
"The reason for which we got a big rally earlier was primarily the flight-to-quality syndrome -- the expectation that what happened to stocks in Tokyo and London would translate here," said Anthony Karydakis, a senior financial economist at First Chicago.
When the stock market stabilized, Treasury securities were not able to hold onto their earlier gains, he said.
A coupon trader said a lack of liquidity may have contributed to the early rally. The market's volatility was exacerbated by situation at Salomon Brothers, which caused some participants to worry about the amount of liquidity in the market, and by Hurricane Bob, which made some New York traders late to work, he said.
"It's a real spastic market," another note trader said. "There's very little liquidity and no conviction on top of that. Who knows what's going to come of this?"
Mr. Karydakis said the flight to quality could resume if the situation in the Soviet Union seems to be moving toward a civil war.
"Everything depends on the news we get from the Soviet Union over the next 48 hours," he said.
One consideration for the long end of the market is how the situation in the Soviet Union will affect U.S. military spending, Mr. Karydakis said. "If people assume military expenditures will have to be increased to face the new situation in the Soviet Union, you're talking about very gloomy prospects for the budget deficit."
The presence of military and KGB officials on the emergency committee seems ominous, but Kathleen Stephansen, a senior economist at Donaldson, Lufkin & Jenrette, questioned whether the committee would even try to return the Soviet Union to the kind of dictatorship that existed before Mr. Gorbachev's reforms.
For one thing, "the Soviet Union will need quite a bit of western capital," which suggests the hardliners will have to come to some kind of compromise, she said.
Some traders said the turmoil in the Soviet Union may be another factor encouraging Fed policymakers to ease again at today's Federal Open Market Committee meeting.
Joseph Pollock, an economist at McCarthy, Crisanti & Maffei, said yesterday's events give the Fed more room to ease, since the dollar surged against the mark and the short end is now expecting a move from the Fed. Treasury Market Yields Prev. Prev. Monday Week Month 3-Month Bill 5.22 5.44 5.71 6-Month Bill 5.40 5.60 5.99 1-Year Bill 5.48 5.76 6.24 2-Year Note 6.18 6.46 6.85 3-Year Note 6.60 6.84 7.28 4-Year Note 6.77 6.98 7.43 5-Year Note 7.30 7.46 7.90 7-Year Note 7.63 7.77 8.13 10-Year Note 7.82 7.94 8.27 20-Year Bond 8.07 8.19 8.41 30-Year Bond 8.10 8.21 8.46
Source: Cantor, Fitzgerald/Telerate
"If they really want to ensure that [the economy] pulls out of the recession in a timely way to prevent damage to things like real estate and insurance companies, why not pull the trigger when they can," Mr. Plocek said.
Other economists argued that the Fed will vote for a bias toward easing but wait to see more statistics.
"They will probably make a decision to stand ready to ease over the next couple of weeks, depending on the numbers they get," Mr. Karydakis said. "It could very well happen before the employment report, but they could well decide to wait until the see the employment report on Sept. 6."
The September bond future contract closed 5/32 lower at 97 11/32.
In the cash market, the 30-year 8 1/8% bond was 9.32 lower, at 100 2/32 - 100 6/32, to yield 8.10%.
The 7 7/8% 10-year note fell 1/16, to 100 6/32-100 10/32, to yield 7.82%.
The three-year 6 7/8% note was up 3/32, at 100 21/32-100 23/32, to yield 6.60%.
Rates on Treasury bills were lower, with the three-month bill down 14 basis points at 5.10%, the six-month bill off nine basis points at 5.20%, and the year bill 10 basis points lower at 5.21%. Salomon On Back Burner
Mr. Gorbachev's ouster pushed the Solomon Brothers scandal to the back burner yesterday.
"That [situation] and any numbers this week are just going to take second place," a London trader said.
Treasury traders are waiting for the regulatory fall-out, if any, from last week's revelation of illegal bids made by Salomon at Treasury auctions, but most said they do not expect Salomon's problems to affect day-to-day activity in the market.
On Sunday, the Treasury prohibited Salomon from bidding at auctions, then softened that prohibition after the firm's board of directors accepted the resignations of the firm's top three officials and named well-known investor Warren Buffet to manage the firm.
As it now stands now, Salomon may bid for its own account but not for customers.
Salomon was the biggest of the primary dealers, but traders said there are a number of other large firms eager to step in and take up any slack. The other firms in Salomon's league include Morgan Stanley, First Boston, Merrill Lynch and Lehamn Brothers.
But they do expect the revelation that Salomon entered illegal bids at Treasury auctions to result in tighter regulation.
"Certainly this sets the ground for more regulation," said Ms. Stephansen.
Also yesterday, Salomon Brothers said Eric R. Rosenfeld was named to run the firm's U.S. government bond operation "until a permanent head is appointed."
On Sunday, Salomon's board of directors fired the former manager of the government trading desk, Paul Mozer.
Mr. Rosenfeld, 38, is a managing director at the firm and most recently served as co-head of U.S. fixed-income arbitrage. He joined Salomon in 1984 after teaching at Harvard Business School and has a Ph.D. from the Massachusetts Institute of Technology.
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August 20, 1991, The Boston Globe, Q&A: What the Salomon Bros. scandal means, by Jolie Solomon, Globe Staff,
The New York financial community has been stunned by the precipitous downfall of Salomon Bros., the most prominent trader of US government bonds, and its powerful chairman John Gutfreund. But the practical effect of these events isn't easy to gauge. Here's a look at the basics of the scandal, and its likely implications. What exactly did Salomon Bros. do?
During government sales, or "auctions" of Treasury securities, Salomon Bros. traders bought much more than they were allowed -- way above the 35 percent legal limit. That kind of behavior can skew supply and demand, changing the prices of securities. And Salomon did this partly by buying securities in the names of customers who hadn't ordered them and didn't know what Salomon was doing. Why are these securities so important?
Treasury securities are the instruments the government uses to finance its deficit. They affect interest rates on everything from home mortgages to company debt, and send signals about the state of the economy to investors around the world. That's why it's critical that the market runs efficiently and with integrity. Did Salomon's actions affect Treasury securities I've bought or own, or those in my pension or mutual fund?
Probably not. Many specialists on government securities say the market is so huge that the effect was marginal. "This doesn't mean a hill of beans to (average investors) worrying about the value of an IRA account or what they've put aside for the kids' education," says Scott Winningham, a market analyst at Stone & McCarthy in Princeton.
Salomon's transgressions "didn't strike at the foundation of the market," says David Bowers, head of the banking and finance department at Case Western Reserve University. It's not the same, he added, as if someone had tried to corner the market in, say, IBM stock, which is a smaller, more limited universe.
Thanks to the ballooning federal deficit, the market is so huge that every individual transaction means less and less. In 1981, there was $900 billion in US debt, and the average auction of 2-year notes totaled about $4.75 billion. Now there is more than $3.5 trillion in outstanding debt and an auction of 2-year notes is about $12 billion. (These figures are not adjusted for inflation.)
"You'd have to be a hell of gorilla" to have an impact in that market, says Joe Deane, a managing director at Shearson Lehman Advisers. Can I still put my trust in US securities?
Yes. This is still considered the "cleanest, sharpest, most transparent market in the world," says Geoffrey Bell, a New York financial consultant and chairman of Guiness Mahon, a London-based merchant bank. That confidence was demonstrated yesterday when fears attached to the overthrow of Soviet President Mikhail Gorbachev sent investors scurrying to US bonds, considered the safest investment vehicle internationally, said Scott Winningham, analyst at Stone & McCarthy in Princeton, N.J. So what's the big deal?
Salomon Bros. did violate the rules repeatedly, "bending the (limits) farther than traditionally considered acceptable" even in a market that is relatively unregulated, said Louis Crandall, chief economist at R.H. Wrightson & Associates in New York. And officers of the firm found out about the violations but didn't report them immediately, allowed them to be repeated and may have covered up evidence. Salomon's actions did hurt some competing dealers, even apparently driving some small players out of business.
That's why the Treasury and the Federal Reserve reacted strongly, helping to force out the top management, suspending some trading functions, and launching investigations.
If the government didn't react dramatically, it would send the signal that such transgressions can be tolerated, and that could lead, ultimately, to declining confidence -- and participation -- in the market. That could raise the cost of financing, ending in an even bigger deficit and pressure to raise taxes.
"Those who on a daily basis trade billions" may not be sensitive enough to these consequences, and to their effect on the "ordinary taxpayer," argues Rep. Edward J. Markey (D-Mass.), who heads the House subcommittee on telecommunications and finance. He said he will convene hearings on the issue Sept. 4, and that Warren Buffett, interim chairman of Salomon, will be the first witness.
The scandal is also making headlines because of the prominence of Salomon Bros and its former chairman, John Gutfreund. "This isn't Podunk Securities in Secaucus," says Bowers. For the New York financial community, "This is right in there with the Bible and the Founding Fathers." The firm's macho adventurism was colorfully recounted in the bestseller, "Liar's Poker," helping raise interest, especially in news of any comeuppance. But congressmen and senators seem pretty excited, too.
Legislators have been pushing for more regulation of this market, and these events help dramatize the issue. Markey proposes changing the rules for dealing in US securities and making more information available. He and others say that, while Salomon's transgressions may have been extreme, they are by no means unique.
"A few individuals at the top of the American financial pyramid have been playing games with the taxpayers' money," Markey charged last week. He said yesterday that there is a "black hole" of supervision, and that the Salomon violations were possible in part because regulators weren't really watching.
But others see this as hyperbole. "Investors should be worried (if Congress) does do something," quips Louis Crandall, chief economist at R.H. Wrightson & Associates in New York. He says more regulation would hurt, not help. For example, he says it's better to limit the number of "primary" dealers -- those who buy directly from the government -- to 40, as is the practice now, than to open up access to more, smaller dealers without the ability or obligation to keep trading even in tough times. What will be the fate of Salomon Bros.?
Hard to predict. The firm is under investigation by federal authorities and will inevitably be sued by shareholders who lost money when Salomon's stock dropped in value last week. But, even if Salomon were barred from trading in government securities, it has reported record profits recently, and has significant other lines of business.
Whether Salomon survives or prospers is more important for its employees and for shareholders than for other investors,the government or taxpayers. "If Salomon were to disappear from the market six months from now," says Bowers, it wouldn't matter. But doesn't this scandal demonstrate that the moral chaos on Wall Street didn't end with the 1980s, as many had suggested?
Depends on whom you ask. Many on Wall Street don't think what Salomon did compares to the 1980s insider trading and stock manipulation scandals, or the looting of S&Ls.
Bowers of Case Western says the fall of Drexel marked a sea change in the markets; away from a dependence on debt and back toward equities. The events at Salomon don't signal such a change, he says.
But "the worrying thing is that this comes on top of a whole series of problems, the S&Ls, life insurance company (insolvencies), the Japanese securities markets (scandal) and BCCI," says Bell. "The ordinary man in the street must be very concerned about the structure and strength of the (international) financial system, never mind (its) probity."
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August 20, 1991, The Boston Globe, Capitalist pageant, communist plague, by David Warsh, Globe Staff,
A couple of global leaders toppled over the weekend. What is the connection between the coup that apparently has deposed Mikhail Gorbachev from the topmost pinnacle of the Soviet Union and the symbolic defenestration of John Gutfreund as chairman of Salomon Brothers Inc., perhaps the loftiest trading and investment bank in the world?
Certainly it is not the one that is popularly drawn: capitalism in disarray, even in the hour of its greatest triumph.
Instead, events in New York offer an object lesson as to what has gone so very wrong in Moscow.
The putch of the Russian cops and generals represents the sad new chapter in the winding-down of a great experiment. The Russian Revolution of 1917 was a moment of electric hope in the history of the 20th century.
It represented the adoption of what Adam Przeworski has called "That particular blueprint that congealed in Europe between 1848 and 1891: rational administration of things to satisfy human needs." It was a blueprint that has captivated many of the best-intentioned minds of several generations. It may still serve well on a less ambitious scale.
Seventy five years later, however, it is clear that the revolution failed in large part because of its inability to renew itself, to resolve its conflicts regularly under unchanging rules. In failed because it was profoundly undemocratic and antagonistic to change.
Political parties in the Soviet Union don't exist to lose elections, managers generally don't fear the loss of their jobs, laws are not made to be obeyed. People grumble, but they don't really expect to exert control.
In contrast, when New York Federal Reserve Bank president Gerald Corrigan called Salomon's chairman Gutfreund for a second time last Friday, it was a sure thing that the 61-year-old bond trader would soon leave his job as quickly as if he had climbed out the window.
Leadership of the firm abruptly shifted to an ousider from Omaha, Nebraska -- Warren Buffett -- and seemed likely to devolve eventually on a 43-year-old officer of the firm who until last week had been managing its Tokyo office. Deryck Maughan was quickly boosted to the outside world as "Mr. Integrity," according to the usual recipe.
The whole thing required one newspaper article, two phone calls and a certain amount of high-stakes backstage maneuvering.
The point is that leadership shifted quickly and unequivocably from one faction on Wall Street to another. The clique that had run Salomon was out; a new and less-connected clique was in. The firm's capital base was threatened briefly as it prepared to roll over a series of IOUs before the Treasury Department steadied the Street.
Wall Street buzzed with speculation about who had put the blocks to "Solly," and why. Certainly it was not a pair of reporters for The Wall Street Journal, acting entirely on their own. Many firms stand to benefit from a diminution of the power of the 40 large "primary dealers" -- investment and commercial banks -- who make the market for US government debt. And so the spotlight was brought to bear on the US Treasuries market.
But the deed was done, and quickly. The losers now are free to fight back, to hire "spin doctors," to plant counterleaks, to retain lawyers and lobbyists, to compete ever harder in the international bond markets.
In contrast, tanks rolled through the Moscow streets yesterday as citizens assimilated the news that -- not some obscure bond covenant or an arcane government regulation -- but the Soviet Constitution itself had been breached in its most fundamental particular. Lies were manufactured and broadcast, as the nation's ruling elite prepared to dig in, by force of arms.
It is precisely this freedom of many different political and economic competitors to contend in a stable institutional framework that has rendered the US capital markets the broadest and deepest in the world. It insures that they will remain so, at least for the foreseeable future. The Salomon scandal is just another proof of how relatively well the system works.
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August 20, 1991, The Boston Globe, Council candidate attacks rival over his tenure at Salomon Inc., by Michael Rezendes, Globe Staff,
At-large City Council hopeful Francis Costello yesterday called on fellow candidate Leo Corbettto supply details of his personal and campaign finances, following disclosures that Salomon Brothers Inc., where Corbett formerly worked, engaged in the improper purchase of government securities.
But Corbett, a one-time partner in the New York City investment house, defended his 10-year record at Salomon Brothers and lashed back at Costello for "taking advantage" of the scandal.
In a sharply worded press release, Costello criticized Corbett for touting his managerial experience with Salomon Brothers and challenged him to release his state and federal income tax returns, as well as to reveal the identities of campaign contributors before the Sept. 10 filing deadline.
"How much has Salomon Brothers and its greedy executives given to Leo Corbett to help him buy a seat on the Boston City Council?" Costello asked.
In an interview, Corbett said the improper purchases of Treasury securities occurred last winter and spring, after he left the company.
Corbett also said he was employed by Salomon Brothers primarily as a senior manager. Although he worked for more than a year as a sales manager and salesman in 1985 and 1986 and occasionally sold Treasury securities, his department was not involved in the recently disclosed improper purchases, he added.
In response to Costello's press release, Corbett said that he would release his tax returns only after all other candidates have done so and that he would release the names of campaign contributors by the required date.
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August 20, 1991, The Boston Globe, Salomon tries to mop up the damage,
NEW YORK -- Salomon Inc. risked losing major investment customers as the Wall Street giant scrambled yesterday to contain the damage from a trading scandal that brought down three top executives.
One day after the firm's highest officials quit in disgrace and multibillionaire investor Warren E. Buffett took charge of the company, members of Congress clamored for tighter regulation of the government securities market Salomon cheated.
The company said it would cooperate fully with four federal agencies that have launched investigations of Treasury market trades by its brokerage, Salomon Brothers.
Yesterday the embattled company appointed two managers for its government bond and foreign exchange operations, the parent company said. Eric Rosenfeld will take responsibility for bonds until a permanent head is appointed. Hans Ulrich Hufschmid will become head of the Global Foreign Exchange department.
Rosenfeld, 38, is a managing director and co-head of Salomon Brothers fixed-income arbitrage. Before joining Salomon in 1984, Rosnefeld was an assistant professor at Harvard Business School.
Hufschmid, 35, is a vice president and manager of Salomon's foreign exchange operation in London. He will now be based in New York.
Rosenfeld and Hufschmid replace Paul Mozer, who was fired Sunday as managing director.
Salomon also continued to meet with shaken customers, who used the brokerage to place orders for Treasury securities. But it was clear some clients remained skeptical.
"We're not convinced that all of the internal problems have yet been addressed," said Kurt N. Schacht, general counsel of the Wisconsin Investment Board.
The Wisconsin board decided it would not deal with the brokerage after Salomon's leaders admitted last week they knew about illegal bidding by the brokerage but delayed telling regulators for months.
"It's going to take more than a few well-placed resignations," Schacht said. Wisconsin will wait until investigators have finished their work and give the firm a clean bill of health before reconsidering, he said.
Meanwhile, officials of the California Public Employees' Retirement System, the nation's largest state pension fund, have been meeting with Salomon officials every day since Thursday, a day after Salomon disclosed the most damaging details of the scandal.
"We have a very high degree of concern about our business there, particularly when you look at the impact that Salomon Brothers has in the marketplace in government securities," said a spokesman for California's state controller, Gray Davis. California has not yet decided whether it will stop investing through Salomon Brothers.
Salomon has admitted cornering more than its fair share of the Treasury market, at times by submitting bids in the names of customers without their authorization. The Treasury Department on Sunday prohibited Salomon from bidding in the names of its customers.
The brokerage is one of 40 primary dealers in the government securities market, meaning it can buy bonds, bills and notes directly from the Treasury at its auctions. Investors place orders for the securities through the primary dealers.
Salomon was the largest government securities dealer, at least before the Treasury's decision to limit its future auction participation.
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August 20, 1991, The Washington Post, Government Bond Market Probe Expanded; Investigation Goes Beyond Salomon Brothers Scandal, Sources Say, by Kathleen Day,
The Securities and Exchange Commission has broadened its probe of the government bond market to include other key players in addition to scandal-ridden Salomon Brothers Inc., Wall Street sources said yesterday.
SEC investigators have been asking questions and seeking information and documents regarding trading activity at a number of leading firms in the elite group that bids for bonds at Treasury auctions, the sources said.
While Salomon has admitted it broke the rules in several Treasury auctions by buying more bonds than rules permit, the SEC has reached no conclusions about whether other firms have committed violations, people familiar with the probe said.
Salomon's admission of wrongdoing during at least five Treasury auctions has been "a definite black eye for the industry," in the words of one securities executive, who said the disclosures spurred the SEC to undertake a more general review of trading practices.
In contrast to the SEC, sources said, the three other federal agencies conducting Salomon investigations - the Treasury Department, the Federal Reserve and the antitrust division of the Justice Department - are thus far focusing their examinations primarily on Salomon, which has admitted to exceeding limits on what one firm can buy during an auction and failing to notify regulators when a violation was discovered.
The limits are designed to prevent any one firm from having so much market power than it can fix prices, which would discourage other firms from trading government bonds and increase the cost of financing the government's ongoing operations and the federal debt.
While the four federal agencies are working together to a degree, they appear to have different approaches on how aggressive they will be, according to industry and government officials.
Justice officials would not comment, but Wall Street traders said that, at least so far, the agency has concentrated on Salomon and several of the firm's largest customers, looking for possible violations of antitrust law, such as price-fixing or other collusive behavior.
The Fed and the Treasury, which run and oversee Treasury auctions of new government bonds, have been criticized by some in Congress for taking too passive an attitude toward regulating the market and not being aggressive enough in seeking out other possible violations.
But government officials at the two agencies said they don't believe there is widespread fraud or price-fixing in the government bond market.
They said they constantly monitor auctions and would know if there were widespread problems, pointing out that it was Treasury that brought the Salomon matter to the SEC's attention in the first place.
If charges of wrongdoing come to their attention, officials at those agencies said, they will look into them.
Yesterday, the Wall Street Journal published a front-page article that quoted anonymous traders and other officials as saying that many of the top firms in the government bond market had long-established practices of colluding on bid prices at Treasury auctions.
The firms named all denied such charges.
But such allegations rankle those in Treasury and the Fed, who would be blamed for failing to detect such widespread abuse should such allegations prove correct.
Several traders said that while traders at the leading firms talk with one another about how well each thinks an upcoming auction might sell, such conversations in no way constitute formal price-fixing.
But several conceded that there is a fine line between sharing general information and specific pricing data, and they conceded that some sharing could be interpreted as "winking" or signaling to competitors about what prices should be. "It depends on what is said, what the intent is and what the result is," said one securities lawyer.
Some government and securities industry officials said they believe the timing of the Treasury's decision Sunday to partially suspend Salomon from buying bonds for customers at Treasury auctions stemmed in part from a desire to quiet charges the agency has been a lax overseer and that the market in government securities is rigged.
Rep. Edward Markey (D-Mass.), chairman of the House subcommittee that oversees securities markets, yesterday scheduled hearings on the matter for early next month and said Salomon's new chairman, Warren Buffett, has agreed to testify.
While government bond market activity seemed unaffected yesterday by the Salomon scandal - the Treasury smoothly auctioned billions of dollars in new three-month Treasury bills - the firm faces a mountain of lawsuits, possible government fines and the loss of some customers.
Those clients include giant state pension funds such as the Wisconsin Investment Board, which said it would not do business with the firm due to admitted violations, the Associated Press reported.
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August 20, 1991, Chicago Sun-Times, Salomon loses California pension fund,
NEW YORK Scandal-tainted Salomon Inc. suffered another blow today when the California state pension fund, the largest in the nation, suspended purchases of government securities through the giant Wall Street broker.
The move shows that Salomon is running into further difficulties as it works to contain the damage from a trading scandal that has already brought down its top management.
The California Public Employees' Retirement System, the biggest state pension fund, said it would stop buying government securities through Salomon "for an indefinite period pending the outcome of the firm's reorganization activities and findings of continuing investigations."
The firm's brokerage, Salomon Brothers, has admitted illegally cornering the government securities market in several incidents, by submitting bids in the names of customers without authorization.
In a statement, the California pension fund expressed "outrage and disappointment in the illegal activities of the firm, but was also encouraged with the quick and decisive actions taken in the hope of restoring some confidence in the firm and protecting its many clients."
California officials had been meeting with Salomon officials to discuss the troubles every day since last Thursday, the day after Salomon disclosed the most damaging details of the scandal.
Salomon's activities are now under scrutiny by the Justice Department, the Securities and Exchange Commission, the Treasury and the Federal Reserve.
California said it will wait until the results of those investigations are in and "until all questions of impropriety have been resolved" before taking Salomon Brothers off what it termed "a probationary status."
There was no immediate response from Salomon to the suspended business from the California fund.
Salomon's own stock price, battered by the scandal, fell 75 cents a share to close at $25.50 this afternoon on the New York Stock Exchange.
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August 20, 1991, Chicago Sun-Times, New heads for Salomon operations,
NEW YORK Embattled Salomon Bros. has appointed two managers for its government bond and foreign exchange operations, the brokerage's parent company said Monday.
Salomon Inc. said Eric Rosenfeld will take responsibility for bonds until a permanent head is appointed, and Hans Ulrich Hufschmid will become head of the Global Foreign Exchange department.
Rosenfeld, 38, is a managing director and co-head of Salomon Bros.' fixed-income arbitrage. Hufschmid, 35, is a vice president and manager of Salomon's foreign exchange operation in London.
A Salomon spokeswoman said Rosenfeld and Hufschmid replace Paul Mozer, who was fired Sunday as managing director.
Salomon, one of the prominent firms in the high-stakes market for U.S. Treasury securities, accepted the resignations of Chairman John Gutfreund, President Thomas Strauss and Vice Chairman John Meriwether on Sunday.
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August 20, 1991, Chicago Sun-Times, A Russian bear market // Dow opens with triple-digit skid; calmer by close, by Greg Burns,
Fearful investors responded to news of a Soviet coup by dumping stocks in frenzied trading Monday morning, but their panic gave way to caution as the market stabilized by afternoon.
The Dow Jones industrial average lost 106 points before rebounding later in the day to close at 2,898.03, off 69.99, its biggest drop since the Persian Gulf war sparked a 78-point decline Oct. 9.
Wall Street's sudden drop came after overseas markets had tumbled on word of Soviet President Mikhail Gorbachev's ouster. "The markets are shook up," Bruce Young of Chicago's Young Capital Group said Monday morning.
The sharp decline at the opening bell triggered a system of "circuit-breakers" that temporarily limited trading on the New York Stock Exchange, Chicago Mercantile Exchange and Chicago Board Options Exchange.
"I'm surprised it came back the way it did," said Paul Murin of David A. Noyes & Co. in Chicago. "I thought it was going to close down 125 points based on the emotional reaction to uncertainty."
Before the start of New York trading, stock prices fell sharply abroad. The Tokyo Stock Exchange's Nikkei average closed at 21,456.76, down 1,357.61 points, or 5.95 percent. In London, the Financial Times-Stock Exchange 100-share index fell 80.5 points to close at 2,540.50, a drop of 3.1 percent.
Grain and soybean futures prices fell sharply at the Chicago Board of Trade as traders pondered the Bush administration's decision to suspend subsidies and loan guarantees. That could prevent the completion of $600 million worth of Soviet purchases of U.S. grain, analysts said.
"We have lost, probably, our biggest customer for agricultural products," said Board of Trade Chairman William O'Connor. "We have a very demoralized marketplace here. Everything was down in the sewer."
Near-term corn futures fell the permitted daily limit of 10 cents a bushel, while wheat for September delivery settled 16 1/4 cents lower and August soybeans dropped 20 cents.
Oil prices rose sharply in active trading on fears that Soviet oil exports would be reduced or halted. On the New York Mercantile Exchange, light sweet crude oil for September delivery closed up $1.17 per barrel to $22.47 after rising nearly $3 a barrel in Europe.
Investors searching out a safe haven for their cash helped boost the dollar in active currency trading Monday.
The dollar rose strongest in relation to the German mark, amid concern about Germany's proximity to the Soviet Union and its obligations under unification pacts. At least 10 central banks engaged in concerted intervention to stem the dollar's rise and support the German mark, dealers said.
After rising more substantially in London, gold edged up just 60 cents per ounce at the New York Commodity Exchange, settling at $358.60. Byron Kennedy, president of FMC Gold, the Nevada gold mining company 79 percent owned by FMC Corp. of Chicago, said Monday that Soviet turmoil won't affect gold prices.
U.S. government bond prices surged in early trading, but fell back later. The price of the Treasury's 30-year bond rose more than a point, but then fell back and closed down about 9/32 point, or $2.81 per $1,000 in face value. Its yield rose to 8.11 percent from late Friday's 8.08 percent.
As for stocks, some Chicago analysts believe the 70-point drop was overdue. "You have to realize we came in this morning with the market near an all-time high," said CBOE market-maker Gary Lahey. "We needed a correction. We had it."
Now might be the time to buy, added Eric McKissack, who manages the Calvert-Ariel Appreciation fund for Ariel Capital Management in Chicago. "I don't see that things have gotten screamingly cheap, but these can be times for selective buying."
Among blue-chip stocks on the most-active list at the NYSE, AT&T fell 1 to 38 1/8, IBM dropped 1 1/2 to 95, General Motors lost 1 7/8 to 35 5/8 and General Electric was down 1 5/8 to 70 3/8.
Salomon, also on the list, fell 1 5/8 to 26 1/4.
Many defense industry stocks bucked the trend on the apparent belief that the coup could lead to a reappraisal of cuts in U.S. military spending. McDonnell Douglas rose 2 1/2 to 51 1/4, Northrop gained 1 1/8 to 30 1/8 and General Dynamics was unchanged at 44 1/4.
Contributing: Edwin Darby, Chicago Sun-Times Wires
Salomon Brothers
Securities Fraud
Investment Fund
Strategy
Trading Strategy
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September 11, 1991, New York Times, Salomon Executive Has an Agenda for Cleaning Up the Desk, by Kenneth Gilpin,
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September 11, 1991, New York Times, Educating Young Mr. Rosenfeld, by Kenneth Gilpin,
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September 11, 1991, New York Times, Salomon Trader in Scandal: 10 Million Pay in 3 Years,
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September 24, 1991, New York Times, Salomon Plans Reserve For Fines and Lawsuits, by Kurt Eichenwald,
Salomon Brothers plans to announce in mid-October the amount of money it will hold in reserve for Government fines and the costs of lawsuits that the firm expects from the Treasuries market scandal, Salomon told customers yesterday. Wall Street executives also said that the firm would determine bonuses for employees within 30 days and that payments would be far more discriminating than in the past. One executive said he had heard that Salomon planned to pay its best people more money than t...
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September 28, 1991, New York Times / Bloomberg Business News, Fees Decline at Salomon,
Salomon Brothers underwriting fees declined 33.7 percent in September as the firm struggled to emerge from the Treasury auction scandal. The firm's fees from underwriting debt and equity securities totaled $10.4 million in September, compared with $15.7 million in August, according to statistics from IDD Information Services
September 29, 1991, New York Times, Forcing Salomon Into Buffett's Conservative Mold, by Floyd Norris,
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October 1, 1991, New York Times, Another Strong Quarter for Wall St. Fees, by Kurt Eichenwald,
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October 2, 1991, New York Times, Successful Stock Sale By Chrysler, by Doron P. Levin,
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October 4, 1991, New York Times, Credit Markets; Salomon Will Sell Berkshire Notes, by Kurt Eichenwald,
Salomon Brothers Inc. plans to sell $163.5 million in zero-coupon notes it owns in Berkshire Hathaway Inc., according to a registration statement filed by Berkshire Hathaway with the Securities and Exchange Commission. The shelf filing covers convertible subordinate notes of the company due in 2004. No date for the sale has been set, a spokesman at Salomon said yesterday.
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October 22, 1991, New York Times, No New Salomon Fraud, by Alison Leigh Cowan,
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October 23, 1991, New York Times / Associated Press, Credit Offer To Salomon,
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October 27, 1991, New York Times, Correction, by Stephen Labaton,
A chart headed "Interest Rates," appearing each Sunday on the first Money page, has reflected erroneous figures supplied by Salomon Brothers for the municipal bond yields since early June. Today's chart, with the corrected yields, appears on page 16.
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October 31, 1991, New York Times, Rite Aid Seeks to Buy Revco As Salomon Settles Lawsuit, by Kurt Eichenwald,
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December 20, 1991, New York Times, California Lifts Salomon Ban, by Kurt Eichenwald,
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December 23, 1991, New York Times, A Salomon Client Is Back, by Kurt Eichenwald,
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December 26, 1991, New York Times, 2d Lawyer for Mozer,
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January 17, 1992, New York Times, California Ends Salomon Ban, by Stephen Labaton,
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April 14, 1992, New York Times, Salomon to Sell 42% Stake In Parent of Grand Union, by Adam Bryant,
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June 12, 1992, New York Times, Salomon Names Co-Head of Equities Unit, by Kurt Eichenwald,
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July 31, 1992, New York Times, Credit Markets; Open Treasury Auctions: Years Away, by Jonathan Fuerbringer,
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September 8, 1992, New York Times, Salomon Still Struggling To Diversify Its Business, by Kurt Eichenwald,
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September 30, 1992, New York Times, Tax Issues For Salomon,
Salomon Brothers Inc., which paid $290 million to settle charges arising from a government-bond trading scandal, could still face tax penalties including fraud charges, a top Treasury official said today. But officials also said Salomon might be able to claim a tax deduction on part of the money paid to settle charges of securities and antitrust law violations.
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December 4, 1992, New York Times, Front Page Caption: A Wall Street Ban,
This item appeared in the paper as a stand alone photograph. Caption information is provided below.
Photo: John H. Gutfreund of Salomon Brothers settled Government charges by agreeing never to run a securities firm again. Page D1. (Salomon Brothers Inc.)
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January 5, 1993, New York Times, Salomon Settles 2 Pay Claims, by Kurt Eichenwald,
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January 6, 1993, New York Times, Salomon Reinstates Trader, by Kurt Eichenwald,
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January 8, 1993, New York Times, Guilty Plea In Salomon Case Set, by Kenneth N. Gilpin,
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January 20, 1993, New York Times, Corrections,
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February 9, 1993, New York Times, Newly Formed Salomon Unit Receives Top Credit Rating, by Saul Hansell,
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March 9, 1993, New York Times, Ford Motor Unit Prices Notes, by Saul Hansell,
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March 21, 1993, New York Times, A Bond That Only a Gambler Would Consider, by Floyd Norris,
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March 21, 1993, New York Times, Profile/John F. H. Purcell; Salomon's Guru On the Third World, by Jeanne B. Pinder,
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March 25, 1993, New York Times, Company News; 2 Top Bond Traders May Return to Field, by Saul Hansell,
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June 21, 1993, New York Times, Citicorp Block Trade, by Saul Hansell,
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July 13, 1993, New York Times, A Top S.E.C. Regulator Takes Post at Salomon,
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November 24, 1993, New York Times, Treasury Market Bill Is Passed, by Jonathan Fuerbringer,
December 31, 1993, New York Times, Trader Settles S.E.C. Suit, by Susan Antilla,
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March 24, 1994, New York Times, Lomas Financial Hires Salomon to Explore Sale, by Susan Antilla,
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July 27, 1994, New York Times, Settlement By Salomon by Keith Bradsher,
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August 21, 1994, New York Times, A Sad Tale Of Penalties For Failure, by Floyd Norris,
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September 1, 1994, New York Times, Reports Imply Somewhat Faster Inflation, by Robert D. Hershey Jr,
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September 18, 1994, New York Times, Wall Street; Salomon's Hong Kong Hangover, by Susan Antilla,
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December 15, 1994, New York Times, Salomon Will Start Selling Orange County Debt Today, by Saul Hansell,
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December 16, 1994, New York Times, S.E.C. Begins to Investigate Orange County Board's Role, by Sallie Hofmeister,
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December 29, 1994, New York Times, Orange County Seeks Advice on Bond Sales, by Sallie Hofmeister,
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January 4, 1995, New York Times, Orange County Sales Set,
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January 17, 1995, New York Times, Merrill Lynch Is Facing Challenge to Credibility, by Laurence Zuckerman,
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February 14, 1995, New York Times, After Bad Year, Two Firms Will Cut Investment Staffs, by Kenneth N. Gilpin,
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February 28, 1995, New York Times, The Collapse of Barings; Men Who Shook the Foundations, by Kurt Eichenwald,
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March 10, 1995, New York Times, Firms Agree to U.S. Review Of Derivatives Operations, by Saul Hansell,
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March 11, 1995, New York Times, U.S. Agency Criticizes 2 Big Wall Street Firms, by Peter Truell,
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March 25, 1995, New York Times, Securities Firms Seeking to Turn Derivatives Debacle Into Profits, by Peter Truell,
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March 29, 1995, New York Times, Market Place; The S.E.C. says a broker helped friends and relatives be insiders., by Susan Antilla,
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April 15, 1995, New York Times, Canada's Borrowing, With Its Fat Fees, Lures Wall Street, by Clyde H. Farnsworth,
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June 6, 1995, New York Times, S.E.C. Said to Prepare Inside-Trading Case, by Stephanie Strom,
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June 16, 1995, New York Times, S.E.C. Accuses an Analyst and His Father of Insider Trading on Merger Plan, by Stephanie Strom,
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July 29, 1995, New York Times, French Investigation Aims at Salomon and Swiss Bank, by Peter Truell,
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August 1, 1995, New York Times, Assembling a Blockbuster Pact At Minimum Professional Wage, by Stephanie Strom,
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December 1, 1995, New York Times, Retailers Had Weak Sales In November, by Jennifer Steinhauer,
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December 5, 1995, New York Times, Market Place;Last Big Wall St. Bear Defects to Optimists, by Floyd Norris,
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February 4, 1996, New York Times, The Siskel and Ebert of Telecom Investing, by Mark Landler,
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March 27, 1996, New York Times / Bloomberg Business News, Merger Expert Quits Salomon
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April 30, 1996, New York Times / Bloomberg Business News, COMPANY NEWS; RHODES CONSIDERS SALE OF COMPANY AND HIRES SALOMON
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May 4, 1996, New York Times / Bloomberg Business News, Corrections
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January 18, 1997, New York Times, Fidelity Forms An Alliance With Salomon, by Peter Truell,
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February 6, 1997, New York Times, Wall Street's Search for the Perfect Blend, by Charles V. Bagli,
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February 14, 1997, New York Times, Even Bullish Analysts Are Looking Sheepish, by Jonathan Fuerbringer,
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October 3, 1997, New York Times, For Salomon, as Adviser, Millions Plus Revenge, by Mark Landler,
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January 29, 1998, New York Times, Is There Life After Wall Street?; Tales of the Players Who Quit the Game, by Leslie Eaton,
Shortly before Christmas, when visions of million-dollar bonuses danced in Wall Street's collective head, a funny if slightly plaintive advertisement appeared in a magazine that caters to traders.
''Last November, after 20 Years on the Street, Jeff Stambovsky Left the Business,'' it said. ''If He Doesn't Sell Enough Records, He's Coming Back.''
The ad highlighted the 45-year-old Mr. Stambovsky's singular career change from bond trader -- he was a managing director at Schroder & Company, a big investment bank -- to jazz musician and children's record producer.
And it marked him as a member of a much admired if little imitated group: Wall Street wheeler-dealers who have banked their bonuses and moved on to live their dreams.
To most Americans, for whom a million-dollar payday would mean winning the lottery, the surprise may be that more of the roughly 1,000 Wall Street executives who just received seven-figure bonuses did not quit. Wall Street jobs may not require heavy lifting, but they often entail days that begin before dawn and end late at night, working on weekends and holidays and traveling perhaps as much as 180 days a year.
Certainly, a lot of people on Wall Street talk about retiring early, and they calculate ''the number'' -- the exact size of the nest egg they will need to make their escape.
But few take the plunge. When Judd S. Levy left Merrill Lynch at 45 to run an inn in Vermont, ''A lot of people called to say, 'I wish I could do what you are doing,' '' he recalled. ''The truth is, many of them could have.'' Mr. Levy now runs a nonprofit housing finance operation in Manhattan.
So the occasional defection gets Wall Street buzzing, especially if the new job is not at a hedge fund or the Treasury Department. Last November, for example, the Street was agog over the news that James O'Donnell, the 36-year-old chief executive of the equities division of HSBC James Capel, an international investment bank, planned to become a Roman Catholic priest.
Mr. Stambovsky's new line of work does not require a vow of poverty -- though he and his wife, Patrice, worry they might go broke. ''A lot of people who leave Wall Street have the net worth of a small country -- we don't,'' she said. ''I've been frightened since the day he left.''
Growing up in Springfield, Mass, Mr. Stambovsky had no intention of becoming a musician or a trader: He wanted to write for Mad magazine.
But he liked music. His parents listened to Frank Sinatra and show tunes -- he remembers going to a road show of ''The Music Man'' -- and his mother gave him the Allen Sherman record ''My Son the Folk Singer,'' which became an early inspiration.
In college, first at Johns Hopkins and later at Vassar, where he majored in philosophy, Mr. Stambovsky ridiculed rock-and-roll, recalled his former roommate, Glenn Bergenfield, a lawyer in Princeton, N.J. Because his friend could sit down at a piano and play cocktail music, ''We were always really popular in bars,'' Mr. Bergenfield said. ''We drank free for two years.''
Like a lot of people who flee Wall Street -- and maybe like a lot of those who stay -- Mr. Stambovsky drifted into the brokerage business. In 1975, he earned an M.B.A. from the University of Chicago. A friend got him an internship at a Chicago firm, which led to a move to New York and a job at Weeden & Company as a municipal bond analyst.
He later moved to Salomon Brothers, a world described by Michael Lewis in his book ''Liar's Poker.'' Research was a backwater. ''I looked at the trading desk at Salomon and said, 'That's where I want to be.' '' Mr. Stambovsky said.
He got a trading job and loved it. ''Everyone who was at Salomon in the 1980's looks back at it as the best days,'' he said. He especially enjoyed ''putting something where there wasn't anything before,'' he said, whether it was a trade, a business, or, eventually, a song.
He spent eight years at Salomon before moving to Bear, Stearns and then Smith Barney, where he helped build up the bond department. In 1988, he joined Wertheim Schroder, as it was then called, as head of the junk-bond department. In a couple of years, he was put in charge of the entire bond business.
And all that time, he continued to play music. ''My first live gigs,'' he said, took place in the 1980's at a bar called the Raveled Sleeve on Third Avenue in Manhattan.
Most of his song-writing came later, after he married Patrice Soriero, a dancer and choreographer who ran a big studio, in 1989, and after they moved from Manhattan to Nyack, N.Y. (There, they became briefly famous for backing out of a deal for a house that was supposedly haunted.)
Their two sons, Zeke, 8, and Noah, 5, inspired some of Mr. Stambovsky's efforts. Only a parent would write a song about antibiotics.
Antibiotics
You'd need an hour just to list 'em
Antibiotics
How can a germ resist 'em?
Another song answers the age-old ''Are we there yet?'' question from the back seat of the car.
Nothing can go faster than
The speed of light
You can't go any faster
Try as you might.
As he reached his 40's, Mr. Stambovsky started reflecting on the career that had come so easily to him and wondered what he could accomplish on his own, without the backing of a big firm.
To find out, he would have to act soon, he decided. So in November 1996, at the age of 43, he left Schroder.
Did people think he was nuts? ''A lot of them did,'' Mr. Stambovsky said. ''A lot of them still do.''
The firm was sorry to see him go, said Steven Kotler, the president of Schroder, adding that he did not expect many of his employees to switch to artistic pursuits because ''you need talent.''
Soon, Mr. Stambovsky started a record label called Hokanzee, an anagram of his sons' names. Its first record, ''What Do You Know, Kid?'', was released in October. Among the songs are paeans to Keynes and Edison, a ditty about grammar and explanations of gravity and photosynthesis. The title song was inspired by the Bing Crosby hit ''Swingin' on a Star.'' ''Nobody's going to write another song like that,'' Mr. Stambovsky said, ''but I like to think this is second best.''
The fact that he wrote and performed all the songs on the record might seem self-indulgent, he acknowledges. ''But this isn't some vanity one-off album and I'm going back to Wall Street after that,'' he said. ''It's not a hobby -- I'm trying to make a living.''
Working out of their home and a small office in Nyack, he and his wife, who is president of the record label, have had to do everything themselves, from setting up a Federal Express account to making sure customers could buy albums using a credit card. ''The idea of sitting up in a room at a piano and writing songs is not very realistic,'' he said.
Now that they have started selling the record, Mrs. Stambovsky is feeling more confident. ''That we came out with something as good as it is -- I feel less nervous,'' she said. ''It's not just chasing a dream.''
The couple is having fun, too. Mr. Stambovsky no longer leaves home before his sons wake up, and he can walk them to school. His next project is a record of jazz lullabies, ''Sleep Warm,'' that should be out in a month or so.
There have been distractions. A film crew has been using the exterior of the Stambovsky's three-story house overlooking the Hudson River, including the long porch with its outdoor fireplace, as location for a movie called ''Step Mom.'' Not only have stars like Julia Roberts and Susan Sarandon been driving up to the door, but the catering operation in the back yard ''looked like Donald Trump's bar mitzvah,'' Mr. Stambovsky said.
Perhaps because he misses the joy of the perfect trade, Mr. Stambovsky has not been able to bring himself to get rid of the suits he no longer wears. ''They're still sitting up in the closet,'' he said. ''Maybe I'll need them for the Grammys.''
Now and then, old colleagues call to ask advice about leaving the Street, but as far as he knows, none have followed in his footsteps. ''Everyone used to talk about how in five years they'd get out, when they were 40 or 45 or 50,'' he said. ''But Wall Street can be a fairly addictive thing.''
Given the ballooning compensation packages, perhaps a few more Wall Street executives will be be tempted to pursue other ambitions. Partners at Goldman, Sachs each received a minimum of $4 million this year, for example, and some made five or six times that, according to executive recruiters.
Alan Johnson, managing director of Johnson Associates Inc., which advises companies on compensation, says firms increasingly worry about losing top talent ''because the amounts of money are so staggering.''
But the pull of Wall Street is strong, and Mr. Stambovsky occasionally feels it himself. He does not expect to go back, but he won't rule it out, either. He reads The Wall Street Journal every day, and his recent ditties include one about the Black-Scholes model of option pricing.
Still, he has no regrets, he said, except maybe one: ''I wish there were a support group for nuts like me.''
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May 3, 1998, New York Times, A Fallen King In Search of a Lesser Throne, by Peter Truell,
THE crowd of writers and public relations people just would not stop chattering one evening not long ago at Tavern on the Green. Over the clinking glasses and crockery in the glittery restaurant, the guest speaker, John H. Gutfreund -- looking every bit the Wall Street mandarin with his tailored business suit, shiny pate and Calvin Klein bifocals -- was having trouble making himself heard.
Before his precipitous fall from grace in 1991, amid a scandal over Treasury bond auctions, Mr. Gutfreund was like a monarch, ruling Salomon Brothers for almost a decade during its halcyon days as Wall Street's powerhouse securities firm.
Now, his face gleaming under bright lights, he struggled through his prepared remarks, sometimes losing his place as he anguished about the current dizzying valuations in the stock market. And when he finished with a quip about the current scandal in Washington, there were polite titters, and even applause, but mostly the crowd was oblivious as the event's organizers appealed for quiet and questions.
It's tough being the former King of Wall Street.
In a society that hallows redemption, Mr. Gutfreund (pronounced GOOD-frend), at 68 years old, is trying with such appearances to re-establish his public profile and bolster his second career as a businessman, financial adviser and venture capital investor.
At Gutfreund & Company, his consulting firm high above Fifth Avenue on 56th Street, the former titan is managing money for a prominent family -- friends say it is Italy's Agnellis, of Fiat fame -- and investing his own time and money in an intriguing if motley group of businesses, most of them small companies far from Wall Street and the big-money deal making that has, among other things, rendered Salomon into just one more piece of somebody else's financial kingdom.
These days, Mr. Gutfreund is a director, for example, of Foamex International, a manufacturer of polyurethane based in Linwood, Pa., with a market capitalization of less than $500 million, and of Baldwin Piano and Organ, the maker of musical instruments in Loveland, Ohio. His investments include holdings in a bottled-water company, an operator of laser eye-surgery centers and the View Group, a small investment firm in Boston that is organizing a fund to seek opportunities in India.
In his richest days at Salomon, Mr. Gutfreund made as much as $3 million a year. Today, while he will not say how much he is worth, the sum is clearly less than he ever expected a decade ago. Legal bills and related costs of more than $11 million forced him to sell his Salomon stock, and even then he failed to recover through arbitration more than $15 million in vested stock options and pension benefits from his 38 years at the investment bank.
''I am more rich in goods than I am in money,'' he said, referring to his 16-room apartment on Fifth Avenue in Manhattan -- worth at least $15 million -- and a pied-a-terre in Paris.
He is rich in friends, too, able to count on the support of a loyal coterie that includes such New York luminaries as the financiers Laurence A. Tisch, Marshall S. Cogan and Lionel I. Pincus, along with Brooke Astor, the philanthropist and society doyenne. And he has his charitable work, supporting the Aperture Foundation, a New York venture that publishes photography books, and serving as a board member of Montefiore Hospital in the Bronx and the New York Public Library.
''What I have learned, or at least belatedly remembered, is that there is the possibility of a satisfying life that is broader than the Street,'' Mr. Gutfreund said. ''All the pieces fit together over time. You use what you have.''
WITH his fat cigars, his cunning and his pithy, often profane one-liners, Mr. Gutfreund built an image that personified the bravado of Salomon. Having become one of the grandest of Wall Street grandees, he then suffered one of the steepest falls of any financial giant in the modern era.
''It was like falling off the mountain,'' said Mr. Cogan, the businessman and art collector who once owned the ''21'' Club.
Mr. Gutfreund's second wife, Susan, a glamorous former Pan Am flight attendant 16 years his junior, lavishly entertained New York society after their marriage in 1981. As newlyweds, the Gutfreunds rented industrial cranes to hoist enormous Christmas trees into the huge duplex apartment along the East River where they lived before moving to Fifth Avenue. Their well-chronicled extravagance ran to weekend Concorde trips to Paris and the rental of Britain's Blenheim Palace, the Churchill family's ancestral home outside Oxford, to throw a party for the financier Edmond Safra and several hundred guests.
''It's so expensive being rich,'' Susan Gutfreund reportedly would tell friends, though her husband said he believed the accounts were apocryphal.
The opulent life ended abruptly in the summer of 1991 as it became clear that Mr. Gutfreund had failed to notify regulators -- and his own board -- quickly enough of the false bids submitted in Treasury bond auctions by Paul W. Mozer, a Salomon managing director, who served four months in Federal prison. Mr. Gutfreund resigned his posts; Warren E. Buffett, the billionaire investor who had bought into Salomon at Mr. Gutfreund's suggestion, took control of the firm to protect his substantial stake.
To the public, Mr. Gutfreund became a symbol for Wall Street's arrogance, avarice and questionable practices. Regulators eventually would rule that he could never again run an American securities business, and Mr. Gutfreund paid a $100,000 fine.
Even today, his explanation of those events comes up far short of a full-throated mea culpa. ''I perhaps mistakenly did what I thought was best for the company,'' Mr. Gutfreund said. ''I am slow to do unpleasant things. I think I probably was a procrastinator at that time.'' As if repeating a catechism that will explain the past, he often says simply, ''I wanted to be the best, and I wanted my firm to be the best.''
That is a stance with which much of Wall Street can find sympathy. ''Many people in the financial community have the sense that John Gutfreund was the scapegoat for the troubles at Salomon,'' said Jonathan J. Everett, a managing director of the View Group, where Mr. Gutfreund became a founding investor in 1993. ''Because of that, he has the capacity to rebuild his career in the financial community.''
What of Mr. Gutfreund's failure to blow the whistle on the Treasury scandal -- an episode that could have undermined Salomon's future? Friends see that as mostly someone else's fault. ''It seems he was listening to legal advice that may have been wrong,'' Mr. Cogan said.
After years of wounded seclusion, Mr. Gutfreund is now opening up. With his friend Robert L. Dilenschneider, the public relations man, as his adviser, he agreed to talk in a series of conversations about his efforts to restore his standing. The ground rules were clear: Mr. Gutfreund would not, one of Mr. Dilenschneider's deputies said, spend much time discussing two subjects -- the Treasury scandal and his wife.
Yet within minutes of sitting down to the first interview, Mr. Gutfreund let drop, with a coy smile, that he and Susan had been tapping their feet at one of the Rolling Stones' concerts last winter in New York. It is little wonder, perhaps, that John and Susan Gutfreund were widely believed to have been models for the Bavardages, the Wall Street society couple in ''The Bonfire of the Vanities,'' Tom Wolfe's satirical novel of New York in the mid-1980's.
MR. GUTFREUND, of course, rejects such characterizations. ''I have never been a social lion; I was misidentified as one because I have a very attractive second wife,'' he said -- a wife whose detractors, he added, are motivated by jealousy and envy. And he seeks to play down the regal reputation he acquired in the 1980's: ''I never thought of myself as a king. People really want you to be their deity. They forget the fact that you are a person who has feelings and doubts.''
The Gutfreunds' social life has calmed considerably. They usually spend their weekends with their 12-year-old son, John Peter, at their rented house near Villanova, outside Philadelphia; Susan Gutfreund has renovated and furnished the home. ''My wife is very interested in carpets and chairs,'' Mr. Gutfreund explained.
Philadelphia is quieter, less grasping and certainly less expensive than Manhattan. ''People in Philadelphia are a world apart from New York,'' Mr. Gutfreund said approvingly. ''They're very different from people in the New York scene. The New York scene wants your visibility and wants your money.'' Philadelphia, he said, is ''not as fickle and not as absolutely materialistic.''
These days, Mr. Gutfreund even sniffs at Wall Street for its greed and shortsightedness. ''You'll find many, many short-term mercenaries there,'' he said. Big securities houses, he said, look out for themselves and not their customers. ''Trading is now no longer a service for many of these firms,'' he complained. ''When you are using other people's capital at a franchise that is not your own, shouldn't there be some sense of stewardship?''
Mr. Gutfreund talks enthusiastically, though, about his new venture capital investments. Aquapenn Spring Water, the Milesburg, Pa., bottled-water company in which he has $100,000 invested (and gets 1,500 shares a year as a director), is ''a small business that's doing extremely well,'' he said. (Wet winter weather, the company said recently, cut water sales, and the stock is now trading at $11.3125, below its initial offering price of $13 in January.)
Aquapenn's founder, Edward J. Lauth 3d, who met Mr. Gutfreund through Mr. Dilenschneider, loves having the former Wall Streeter on his board. ''What we appreciate in central Pennsylvania is people who are forthright and upfront, and that's what John is,'' said Mr. Lauth, chairman and president of the company, which has 225 employees. The two men talk weekly, and Mr. Lauth said Mr. Gutfreund is ''a terrific resource,'' particularly for his focus on shareholder value and his handling of Aquapenn's negotiations with Paine Webber and Lazard Freres, the securities firms that underwrote Aquapenn's stock offering.
In his new career, however, Mr. Gutfreund sometimes behaves more like a young venture capitalist than a Wall Street maven. One January day, for example, he caught a dawn flight to Cincinnati to attend board meetings at the headquarters of LCA-Vision, the laser-surgery company where he holds a stake of less than 5 percent. No Wall Street luxury here; Mr. Gutfreund fetched his own coffee and danish during the meetings and flew coach back to New York that afternoon.
Stephen N. Joffe, a professor of surgery in Cincinnati who met Mr. Gutfreund in 1995 and whose family controls LCA-Vision, described the former investment banker as his ''right hand in advising on making strategic decisions.'' LCA-Vision's stock has been volatile in an industry that has never caught on with investors; the company expects to report positive cash flow for the first time by the end of this year.
PERHAPS the world has come full circle. John Gutfreund grew up far from Wall Street. His father, Manuel -- friends called him Buddy -- ran a successful meat-trucking business in Manhattan that allowed the family to move to Westchester County. Mr. Gutfreund attended high school in Scarsdale and then transferred to the Lawrenceville School, a prep school in New Jersey. He attended Oberlin College in Ohio, where he studied literature and drama, and then served in the military in Korea.
An interview with William R. Salomon, scion of the securities firm's founding family -- and Buddy Gutfreund's sometime golf partner -- led to a start at Salomon for Mr. Gutfreund in 1953. He readily took to the Wall Street life, rising through the firm's municipal securities business. In 1958 he married Joyce Low, the daughter of a partner at Bear, Stearns, and in 1963, he made partner at Salomon, acquiring a reputation for being a shrewd judge of risk and the pricing of securities.
''He was hard-working and intelligent,'' recalled Mr. Salomon, 84, whose father and two uncles founded the firm. ''He got there early and stayed late.''
Indeed, the first Mrs. Gutfreund and the couple's three young sons sometimes took second place to his work. ''I probably didn't give my older children as much time as I could have,'' he says now. But with Mr. Gutfreund steering much of the firm's trading business, Salomon rose through the Wall Street ranks. Once his rival, William E. Simon, departed for Washington, eventually to become Treasury Secretary, Mr. Gutfreund became deputy to Mr. Salomon, succeeding him as the firm's senior partner in 1978.
Less than three years later, Mr. Gutfreund sold the partnership to the commodities firm Philipp Brothers and quickly came to dominate the combined firm. ''I was very upset; I felt betrayed,'' Mr. Salomon recalled, explaining that he had left the firm in Mr. Gutfreund's hands ''in the hope and expectation that we would remain a general partnership for a long time.''
Judith Ramsey Ehrlich and Barry J. Rehfeld, who detailed Mr. Gutfreund's career in their 1989 book, ''The New Crowd: The Changing of the Jewish Guard on Wall Street,'' (Little, Brown) asserted that Mr. Gutfreund grew increasingly rapacious after his 1981 marriage to Susan. ''The kind of money required to put his bride and himself on the social map was buried in the Salomon Brothers' partnership,'' the book said. ''Susan understood that lots of money was needed by people who otherwise lacked the social credentials for a beachhead in celebrity society and perhaps even in high society.'' Mr. Gutfreund severely criticized the book, calling it ''full of inaccuracies'' and adding that its authors had not interviewed him.
FINANCES seem to play their part in driving Mr. Gutfreund's current pursuit of business and a higher profile. His most successful investment, he says half-jokingly, has been the money he left at Warburg Pincus, the mutual fund company run by his old friend, Mr. Pincus. And his costliest decision may have come in late 1992, when he rejected Salomon's severance offer of about $8.5 million -- a little more than half what he believed he was owed in vested options and pension benefits held by the firm. He went to arbitration, seeking as much as $30 million. The arbitration panel gave him nothing.
''He played these tough-guy images through to the end,'' said William A. McIntosh, who ran Salomon's bond sales and trading department, recalling Mr. Gutfreund's long wrangle with the firm. ''It cost him.''
Mr. Gutfreund refuses to second-guess himself. ''Do I regret?'' he said. ''No, I don't. I made a mistake and that is that.''
Making the change from Salomon and its quarreling barons to managing money and investing it successfully is difficult, as Mr. Gutfreund readily acknowledged. He is resolutely bearish about the financial markets, and the low returns that he has made in recent years on financial investments (a 2 percent gain last year on a global bond fund and a big loss on his investment in the View Group, which is starting the fund for India, for example) indicate that he has largely stayed away from the equity markets.
''I advise one group,'' he said of his money management clientele, declining to confirm his friends' identification of the client as the Agnellis. Those same friends say Mr. Gutfreund's arrangement with the client gives him 10 percent of all investing profits, offering a steady income.
''I've never done this before,'' Mr. Gutfreund said. ''It's been a terrific learning experience.''
Pursuing a second career at an age when many Wall Streeters have retreated to gated retirement communities takes courage, Mr. Gutfreund's supporters say. ''I admire the guy more now than before,'' said Terrence J. English, chairman of Sovlink, an investment firm based in Manhattan and specializing in Russia. ''If he was Japanese, he would have shot himself.''
Mr. English, who has known Mr. Gutfreund since the 1980's, when they both worked at Salomon, said that he had not paid his old colleague much for years of useful advice. ''I've smoked more of his cigars than he has of mine,'' Mr. English said. ''I think more than anything else he misses the opportunity to contribute and be part of the game.''
Mr. Gutfreund's legendary aloofness -- some would say hauteur -- surfaces even when he talks about such allies. ''He used to work for us,'' Mr. Gutfreund said when asked about Mr. English -- ''us'' being Salomon.
The securities firm is an awkward subject for Mr. Gutfreund. ''My network is not Salomon; it's people in the real world,'' he retorted dismissively when asked how much he sees former colleagues.
BUT if the scars from his fall have left Mr. Gutfreund a tad humbler, they are surely permanent. ''Unfortunately,'' Mr. Salomon said, ''however hard he tries, the words 'Treasury scandal' will be in the first line of his obituary.''
In any event, Mr. Gutfreund's fascination with earthly power still sometimes seems undimmed.
Asked about his leisure pursuits, Mr. Gutfreund lamented a lack of time for reading books but added that he enjoyed listening to books on tape during his weekly drives to and from Villanova.
What had he listened to the previous weekend? Machiavelli's ''The Prince.''
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October 2, 1998, New York Times, Fallen Star: The Partners; After Salomon, Friends Built And Lost 'Dynastic Wealth', by Peter Truell,
As their wealth grew rapidly, John W. Meriwether and some of his 15 partners at Long-Term Capital Management L.P. even considered buying a vineyard in France early this year.
Why not? Mr. Meriwether, his friend and partner Eric R. Rosenfeld, and some of their colleagues, were wine buffs who had amassed considerable cellars that boasted rows of the choicest vintages from the best vineyards in Bordeaux and Burgundy, friends said.
And money was certainly not a problem. Among them, the 16 managing partners had amassed spectacular wealth by the end of last year, totaling well more than $1.5 billion. ''Dynastic wealth,'' as one of their friends put it yesterday, ''Serious dynastic wealth.'' Which, he added, ''they created in an extraordinary period of time, and then lost.''
In a spectacular riches to rags story, that wealth has now, in just a few months, been all but dissipated, with a few of the 16 partners even facing the prospect of personal bankruptcy, said friends and colleagues interviewed in recent days.
In a settlement thrashed out this week at the Manhattan offices of the law firm Skadden Arps Slate Meagher & Flom, a group of banks and brokerage firms took over 90 percent of Long-Term Capital, recapitalizing it with $3.6 billion and leaving the former owners with just 10 percent of the business. Of that 10 percent, the firm's 16 partners now hold less than a third of that.
With the exception of a few partners who joined more recently, 11 of the group started with Mr. Meriwether in 1993 when he organized the investment partnership after his 1991 ouster from Salomon Brothers. Capital was easy to come by, and the best brains in Wall Street had realized that raising one's own capital and running one's own hedge fund brought much bigger profits than working for some big old battleship like Salomon Brothers, where just paying the overhead for the firm's headquarters cost millions of dollars a day.
The group also had the cream of Wall Street supporting its venture: Merrill Lynch & Company helped it get established, acting as placing agent for the new fund; Simpson Thacher & Bartlett was the group's legal counsel.
The majority of the partners at Long-Term Capital came from Salomon's offices in downtown Manhattan, where they had gained fame and fortune for their work with Mr. Meriwether and Mr. Rosenfeld. They were Victor J. Haghani, Gregory D. Hawkins, Lawrence E. Hilibrand, Hans U. Hufschmid, Arjun Krishnamachar, Richard F. Leahy, Robert C. Merton and Myron S. Scholes. As many as 12 of Long-Term's 16 principals, or managing partners, were Salomon veterans, but the core of the group was Mr. Meriwether, Mr. Rosenfeld, Mr. Hilibrand and Mr. Haghani, former colleagues said.
''They're all nice, good honest people; that's the tragedy of this whole thing,'' William A. McIntosh, a former Salomon partner who is now an adjunct professor at Howard University, said discussing the managing partners of Long-Term. ''They're all intellectual, they all get along well, and they are all good friends to one another.''
The group of former Salomon executives is also extraordinarily cohesive and complementary. Mr. Mullins, a former vice chairman of the Federal Reserve; Mr. Scholes and Mr. Merton, who are both former Nobel Prize winners in economics, form the core of the academic group at the firm. Mr. Meriwether, Mr. Rosenfeld, Mr. Haghani, Mr. Hilibrand and most of the other partners have the strategy and trading expertise. Robert Shustak is in charge of trading systems and operations.
Golf, one of Mr. Meriwether's favorite pastimes, is part of the glue that has bound the partnership together, friends said. ''They all got into golf,'' the friend said. ''Every now and again, they would go off and play golf together, down in the islands, or over in Waterville.''
Waterville is the internationally renowned golf course in County Kerry, in southwest Ireland, where Mr. Meriwether, 51, and Mr. Leahy, a veteran of Salomon's mortgage sales business, are partners. ''It's a world-class golf course,'' one of their friends said yesterday, Mr. Meriwether and a group of partners ''bought it in a bar right from the owner, 10 or 11 years ago.''
Mr. Hufschmid, who along with Mr. Haghani manages the Long-Term Capital office on Conduit Street in London's West End, had run Salomon's foreign exchange business, which had at times generated fabulous profits for the Wall Street firm. Mr. Hawkins had run the mortgage business on Salomon's renowned bond arbitrage desk.
Peter Rosenthal, a spokesman for the partners of Long-Term Capital, declined to comment yesterday and several of the partners have not returned messages left at their homes or offices in recent days.
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October 11, 1998, New York Times, Long-Term Capital: A Case Of Markets Over Minds, by Douglas Frantz and Peter Truell,
BOND traders nicknamed Long-Term Capital Management ''Salomon North,'' a reference to the many partners in the Greenwich, Conn., hedge fund who were veterans of Salomon Brothers. But a more apt choice might have been ''M.I.T. South.''
The people -- and the mathematical ''rocket science'' -- at the core of the elite hedge fund had strong ties to the Massachusetts Institute of Technology, and the working atmosphere was far closer to the studied tranquillity of academia than to a frenetic trading floor.
Even the setting in wealthy, quiet Greenwich was chosen to contrast with the gray skyscrapers and crowded, narrow streets of Manhattan's financial district. The partners, many of whom had mined those financial canyons for tens of millions of dollars, traded suits and ties for polo shirts and chinos, preferring to relieve stress with a game of pool or a fishing break.
The mood was collegial, recalled Peter van Rijssen, a recent college graduate who spent a pleasant three months as a $17-an-hour temp at Long-Term Capital in the summer of 1996. ''Everyone was extremely friendly, from the boss on down,'' he said. ''It was very calm and ordered.''
That order was shattered last month as Long-Term Capital ran out of money and was deemed too big to fail without disrupting the global financial markets, leading to an emergency $3.6 billion capital infusion by a consortium of brokerage firms and banks organized by the Federal Reserve Bank of New York.
As the winds of turmoil strip away some of the firm's secrecy, a portrait emerges of a group of highly analytical, extremely rational former academics who believed they had created a mathematical trading model to withstand the sharpest gyrations of the global marketplace. In hindsight, their lack of trading instincts and their adherence to numerical models -- which showed that their bets would eventually pay off -- kept them from understanding the gravity of their situation until it was too late.
So certain were they of the firm's infallibility that they kept virtually all their money in the fund, treating it as a checking account, and borrowed money to increase their personal stakes in it. Some expected to attain riches that would put them on a par with the wealthiest dynasties in America.
One of the 16 partners, Lawrence E. Hilibrand, an M.I.T. graduate who earned $23 million at Salomon in 1990, borrowed $24 million last year to increase his investment in the fund. Now Mr. Hilibrand, his partners and many of firm's 180 employees are scrambling to avoid financial ruin and anguishing over the damage they have inflicted to themselves and their investors.
''Our wealth has been knocked down to zero in many cases,'' said a person involved with the firm. ''But most of us came from backgrounds of academics and teaching, and it wasn't too long ago that we didn't have much.'' Of course, many of them have long become accustomed to the trappings of wealth.
The partners at Long-Term Capital have laid low, generally declining requests for interviews. ''They have always been extraordinarily secretive and didn't want to be in any publication,'' said Antoine Bernheim, who could not even get enough information to include Long-Term Capital in his annual hedge fund directory. But several people involved with the firm agreed to speak on condition that their names be withheld.
JOHN W. MERIWETHER, a pioneer in betting on fluctuations in bond prices, a strategy known as bond arbitrage, recruited many of the finest minds in finance, most from his former firm, Salomon Brothers, to create Long-Term Capital in 1993. They shared an intellectual approach to the world of trading, one that flowed from their backgrounds in academia and their doctorates in finance.
''These guys are among the best and the brightest,'' said William A. McIntosh, a former Salomon partner and a former colleague of many Long-Term Capital principals.
The partners ''tried not to react to things too quickly,'' said one person involved since the early days. ''We have tried to study things very carefully. We have tried to do it very slowly.''
That strategy was well suited to the good times but would come back to haunt the partners when market volatility outstripped their ability to react.
Among the fund's original partners were two academics who had spent time at M.I.T. and who would later share a Nobel Prize, Myron S. Scholes of Stanford University and Robert C. Merton of Harvard University, whose groundbreaking work in 1973 had turned risk management into a science and opened up Wall Street to the era of ''rocket scientists,'' the mathematics and physics whizzes who trade according to formulas instead of hunches.
Mr. Scholes, whose Greenwich house overlooks Indian Harbor on a private road, played a key role in soliciting money for the original fund, according to one fund investor. ''At the presentation, he was just the brightest guy I'd ever heard,'' the investor said. ''It was a collection of uniquely intelligent men.''
The rocket scientists included Eric R. Rosenfeld, a former professor at the Harvard Business School who had been a managing director at Salomon, and Gregory D. Hawkins, another former Salomon managing director and a former finance professor at the University of California at Berkeley.
Like Mr. Hilibrand, Mr. Rosenfeld and Mr. Hawkins did graduate work at M.I.T. when Mr. Merton was on the faculty there. Mr. Scholes did his pioneering work while a junior faculty member at M.I.T. David W. Mullins Jr., who left the No. 2 spot at the Federal Reserve Board to join the venture, received his doctorate from M.I.T. at the same time Mr. Scholes was teaching there.
Later, two others with M.I.T. connections joined Long-Term Capital: David M. Modest, who had moved to Berkeley as a finance professor after graduating from M.I.T., and Chi-Fu Huang, an expert on creating models for swap contracts, financial instruments designed to take advantage of currency, bond and other price differences.
Success came fast. The firm, which is organized as a limited partnership with a minimum investment of $10 million, began trading in February 1994 and produced a net return of 20 percent that year, 43 percent in 1995 and 41 percent in 1996. In the first three years, investors more than doubled their money, far better than they would have done in a typical American stock fund. The fees that the firm charged investors were hefty, too -- a 2 percent management fee and a 25 percent annual ''incentive'' fee, both well above those of other firms -- but no one was complaining.
Along with attracting money from wealthy individuals and institutions, the partners contributed about $150 million of their own money to the investment pool and then treated the fund like a private bank.
''Some months they would withdraw $10,000, and when they had a big purchase, they would take out more,'' said one person involved with the firm.
SOME purchases were big, indeed, befitting risk takers who were reaping big rewards. Some of the partners had bought into a golf course in Ireland. Others began to learn about wine and developed a taste for $100-a-bottle Burgundies, like Gevrey-Chambertin.
Mr. Meriwether, a top earner on Wall Street for 15 years, already owned a 67-acre estate in Westchester County, N.Y. But even after earning $23 million in 1990 at Salomon Brothers, Mr. Hilibrand and his family remained in a $1 million colonial on about an acre in Scarsdale, N.Y. In 1996, though, he and his wife, Deborah, paid $2.1 million for a 15-acre lot in a gated development in northwest Greenwich and began to build a $4 million home, according to records on file with the town's division of buildings. Construction is nearly completed, and the builder said recently that no one had told him to stop work.
Mr. Hilibrand shuns interviews and refused to have his photograph taken when he was a managing director at Salomon. Friends describe him as a political libertarian and say he is obsessed with his privacy.
Mr. Hilibrand is one of at least four Long-Term Capital partners who took out personal loans, secured by their shares in the firm, to increase their investments in the portfolio, according to people involved in the transactions. His loans are the largest, at $24 million.
Hans U. Hufschmid, who received $18 million in compensation from Salomon in 1993, according to a former firm official, also borrowed heavily. People involved with the firm said Mr. Hufschmid, a foreign-exchange expert who works out of the firm's London office, had borrowed $14.6 million to increase his fund equity.
Now Mr. Hilibrand and Mr. Hufscmid are negotiating with creditors from Credit Lyonnais and other banks to reschedule their debts and to persuade lenders to take a claim on future earnings, say bankers and others involved in the talks.
It is probably too soon to say whether anyone will be pushed into personal bankruptcy. ''If banks require them to pay it today, they can't pay it,'' said one person involved in the firm's finances. ''Their assets must stay in the fund. They also have other liquid things in their names. I believe everything can be worked out.''
AT the very least, the fabulous wealth has evaporated, and some partners may lose everything they have accumulated in recent years, from mansions to wine cellars.
''If people have to sell their homes, it's not the end of the world,'' said the person involved in the finances.
Mr. Scholes may have at least some money outside the fund. After he and Mr. Merton shared the $1 million for the Nobel economics prize in 1997, Mr. Scholes told a reporter that he would not be investing his portion in the hedge fund. ''I thought about that,'' he told Institutional Investor magazine. ''But I think it's in bad taste.''
For some lower-level employees, the collapse of the firm means more than just lost wealth. A couple of days after the Sept. 23 bailout, a trader entered the office of one partner and began to weep. He said he feared that he would have to cancel his wedding because he had been wiped out, said a person who witnessed the scene.
The partners' decision to hang on to their market positions even as their capital evaporated and markets turned against them was completely in tune with their ''take it slow'' character. Trouble became apparent in May, when the portfolio lost 6.5 percent. In June, it lost 10 percent, leaving it down 5 percent for the first half of 1998, its first period in the red, according to people involved with the firm.
THE cataclysm came on Aug. 17, when Russia devalued its currency and halted payments on its debt, sending bond prices down almost across-the-board. Only United States Treasury securities were spared as investors decided safety was everything. Nearly every big investment house and bank that trades bonds took a hit, but Long-Term Capital was devastated because its positions were spread across the globe and it had invested as much as $100 billion in borrowed money.
By the end of August, the portfolio was down 44 percent for the month and 52 percent for the year.
After failed attempts to raise more money, the partners agreed to a rescue in late September by the consortium of 14 brokerage firms and banks. In exchange for an infusion of $3.6 billion in capital, the equity of the investors, including the partners and employees, was reduced to 10 percent and tight restrictions were set on their ability to withdraw funds.
For the moment, Long-Term Capital, rescued by its nervous creditors, has narrowly avoided a meltdown, and its partners with big debts, like Mr. Hilibrand and Mr. Hufschmid, seem sanguine about avoiding bankruptcy.
Things could still get worse -- if the financial markets eat away at the fund's capital and the rescue falls apart -- but the bulk of the risk has been shifted from Greenwich back to Wall Street, no small bit of rocket science itself.
''There is an old axiom in the restructuring business: If you're going to fail, then fail very big,'' said Thomas Maloney, a partner at Cleary Gottlieb Steen & Hamilton. That way, he explained, your creditors have to bail you out.
Chart: ''Next Stop Greenwich''
As if there were a pipeline, many of the most influential economic and financial minds from the Massachusetts Institute of Technology in Cambridge seemed to be drawn to Long-Term Capital Management in Connecticut, where they turned their arcane quantitative theories into dizzying investment practices. But markets don't always respect the primacy of intellect, and Long-Term Capital's brain trust is seeing a reversal of fortune.
Robert C. Merton
One of the fund's original partners, he was at M.I.T. before he joined the faculty at Harvard and won a Nobel prize in economics in 1997 for his work in risk management.
David W. Mullins Jr.
He joined the venture after leaving his post as the No. 2 official at the Federal Reserve Board. He received his doctorate from M.I.T. while other members of the partnership were on the faculty.
Eric R. Rosenfeld
A former professor at the Harvard Business School who had been a managing director at Salomon Brothers, he did graduate work at M.I.T. when Mr. Merton was on the faculty.
Myron S. Scholes
Awarded the Nobel prize with Mr. Merton, He did his pioneering work while on the faculty at M.I.T. He is said to have played a key role in soliciting money for the original fund.
Photographs by Brooks Kraft/Sygma (Merton); The New York Times (Mullins); James McGoon/Sygma (Rosenfeld); Associated Press (Scholes)(pg. 9)
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April 21, 2000, New York Times, Ex-Bear Stearns Executive Is Barred From Securities Industry,
Richard Harriton, the former chairman of the securities clearing subsidiary of Bear Stearns, will pay $1 million in penalties and be barred from the securities industry under a settlement disclosed yesterday by securities regulators.
The settlement, which ends a civil fraud lawsuit brought by the Securities and Exchange Commission last August, says Mr. Harriton is barred from conducting business in the securities industry for life, though he may reapply to regulators after two years. Mr. Harriton settled the suit without admitting or denying the accusations.
The S.E.C.'s suit against Mr. Harriton, 65, followed a three-year investigation into the failure of A. R. Baron, a New York brokerage firm, which defrauded investors of $75 million before it closed in 1996. The Bear Stearns Securities Corporation, the subsidiary of the Bear Stearns Companies run by Mr. Harriton until last August, cleared A. R. Baron's trades and provided it with the capital it needed to operate.
In a separate civil suit, the S.E.C. accused Bear Stearns of helping A. R. Baron commit securities fraud by financing its operations even in the face of overwhelming evidence that the smaller firm was defrauding its customers. Bear Stearns settled the suit without admitting or denying the accusations and paid $38.5 million in fines and restitution.
In yesterday's settlement order, the S.E.C. said that Mr. Harriton's actions had caused certain A. R. Baron customers to be defrauded and substantially assisted the overall fraud conducted by the smaller firm by allowing it to stay in business when it lacked the necessary capital to operate.
The S.E.C. also described numerous instances of fraudulent activity at A. R. Baron in the period Bear Stearns cleared trades for the smaller firm and that the Bear Stearns executive ignored. For example, regulators said that Mr. Harriton prevented A. R. Baron from rescinding trades made in customers' accounts that he knew were unauthorized.
When the S.E.C. filed its suit against Mr. Harriton, who had run Bear Stearns's clearing operation for 20 years, he said the government's accusations were baseless. A statement sent by Mr. Harriton's lawyer to Bear Stearns's clearing customers last August said: "Mr. Harriton will fight these charges and expects to be fully vindicated by the judicial review of the S.E.C.'s claims."
Howard Wilson, Mr. Harriton's lawyer, said in a statement yesterday that his client had "decided to settle this civil case as a result of the S.E.C. having agreed to limit its finding to a charge consistent with negligence by Harriton in his actions."
But William R. Baker III, associate director of enforcement at the S.E.C. disputed this characterization of the settlement.
"I think a fair reading goes well beyond that," Mr. Baker said. "These are the most serious sanctions imposed against a senior official from a broker dealer since John Gutfreund and the Salomon Brothers case." In that early 1990's case, Salomon Brothers was accused of submitting false bids for a two-year Treasury issue and exerting unusual control over the market. According to the S.E.C., Mr. Gutfreund paid $100,000 and agreed not to be chief executive or chairman of any registered firm.
Mr. Baker said the settlement with Mr. Harriton "sends a message that we can't tolerate a senior official standing by and watching fraud go on."
Had the case gone to trial, it would have been heard by an S.E.C. administrative law judge. Mr. Harriton's lawyers planned to call 113 witnesses -- 23 of them Bear Stearns employees, including Alan C. Greenberg, the firm's chairman. Another witness on Mr. Harriton's list was Randolph Pace, former head of Rooney Pace, a defunct brokerage firm. Mr. Pace is under indictment for securities fraud and is awaiting trial in Federal District Court in Manhattan. His lawyer has said he will be proved not guilty.
By agreeing to be barred from the securities industry, Mr. Harriton must give up a consulting agreement that he struck with his former firm, Bear Stearns, upon leaving it last year. A Bear Stearns spokeswoman declined to comment on how much Mr. Harriton has been paid and other terms of that agreement.
Securities lawyers say that it is by no means a certainty that Mr. Harriton will be allowed by regulators to return to the securities industry if he reapplies in two years.
Nevertheless, the terms of the agreement with the S.E.C. were light, according to Norman Poser, a professor of securities law at the Brooklyn Law School. "When you think about the fact that the chief financial officer of Baron got 5 to 15 years in jail, I would think that if this had been a small firm, if Harriton were C.E.O. of a small brokerage firm engaged in activities of this kind, that he would be out of business permanently," Mr. Poser said.
Mr. Harriton may still face individual complaints from customers swindled by A. R. Baron employees. The S.E.C. settlement contains details that could be used by lawyers bringing arbitration cases against him. Because Mr. Harriton neither admitted nor denied the accusations, however, arbitrators would have to determine how much weight to give such details.
Mr. Harriton may also find himself drawn into the federal securities fraud case against Mr. Pace in the Southern District of New York. The case, which is expected to go to trial in about six months, involves another brokerage firm that Bear Stearns cleared trades for, Sterling Foster, which defrauded investors of $100 million before it closed in 1997. Mr. Pace and Mr. Harriton have been friends for years. Mr. Harriton's son Matthew is an investor or executive in three companies that prosecutors say have ties to Mr. Pace. Matthew Harriton has not been charged with any wrongdoing.
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August 12, 2001, New York Times, Investing With: Matthew P. Ziehl; Salomon Brothers Small Cap Growth Fund, by Douglas Frantz and Peter Truell,
SMALL, rapidly growing companies are risky investments, and many people who lost money when the Internet bubble burst are avoiding risk. That is a mistake, says Matthew P. Ziehl, lead manager of the $297 million Salomon Brothers Small Cap Growth fund.
"The outlook for small growth stocks is good, given that valuations are attractive," Mr. Ziehl said from his Manhattan office. "These stocks have historically outperformed as the economy moves toward a recovery."
The fund returned 22.9 percent, a year, on average, for the three years through July 31, after adjusting for its 5.75 percent maximum sales load. This compares with a 10.7 percent load-adjusted return for its small growth group and 3.9 percent for the Standard & Poor's 500-stock index, according to Morningstar Inc. It fell 13.9 percent, load-adjusted, in the 12 months through July, versus a 16.9 percent load-adjusted loss for its group and a 14.3 percent drop in the S.& P. 500, Morningstar said.
Mr. Ziehl, 34, describes himself as a fundamental growth investor. "We're not in the momentum, or technical growth camp," he said. "Over the long term, the fundamentals of the company and the industry are what drive returns in stocks."
Mr. Ziehl uses no computer screens to select the roughly 100 stocks in the final portfolio from among 1,500, mostly United States, companies with market capitalizations of $140 million to $1.8 billion at the time of purchase. At 8:30 each morning, Mr. Ziehl meets with 10 sector analysts who manage chunks of the fund to discuss who should be allocated more money and from whom it should be taken. ''Capital allocation is a group decision, but it's driven by the number of ideas that each sector manager has at that time,'' he said.
The group looks for small companies with strong market share in high-growth industries like technology and health care, ideally with solid balance sheets and improving profit margins. ''These companies are in the growth phase and their actual margins are often very low because they're reinvesting in the business,'' Mr. Ziehl said.
An important factor is a company's ability to finance growth internally. "The equity markets are fickle," he said. "If the industry is out of favor, it suddenly becomes difficult to raise capital and the business plan is halted for lack of money."
Mr. Ziehl also prefers companies with little debt, generally a ratio of debt to capital well below 50 percent, depending on the industry.
In the smaller companies, strong management is particularly critical. "A lot of small-cap growth is salesmanship," he said, "so they need to be able to clearly communicate their vision to get the stock price going." Another plus: substantial ownership of company shares or options by managers.
Mr. Ziehl prefers shares with price-earnings ratios equal to or below a company's projected five-year earnings growth rate, so he wants a P/E of 20 or less for companies with 20 percent growth rates. He limits purchases of any one stock to 0.5 percent to 2.5 percent of the fund's assets, and manages risk by starting to trim when they exceed 4 percent.
In July, Mr. Ziehl bought more shares of Axcelis Technologies, in Beverly, Mass., which he first bought in April for $12.86. Axcelis produces equipment used in manufacturing semiconductor chips. The stock trades for roughly 2.2 times its trailing 12-month price-to-sales ratio; its historic norm is 4 to 6 times sales, he said, adding, ''Semiconductor equipment makers tend to rebound a bit earlier than other areas of technology, mostly on expectations of improving fundamentals down the road.''
Shares closed Friday at $13.51.
HE also added to OM Group, in Cleveland, first purchased in August 1999 for $38.58. On Friday, those shares closed at $62.25. OM, a specialty chemical company, dominates the market for cobalt, used heavily in batteries, Mr. Ziehl said. "It's an enormous growth area and will become even bigger over time," he added. His five-year projected annual growth rate is 15 percent. Shares trade for 15 times 2002 earnings -- a cheap price, given the potential market for batteries used in electric-powered and hybrid vehicles, he said.
Mr. Ziehl paid $43.67 for shares of Commerce Bancorp, based in Cherry Hill, N.J., in August 1999. "It's taken a brick-and-mortar, high-service approach to banking," he said.
It has built additional branches and its service is so good, he said, that depositors accept relatively low interest rates. "The easy way to get deposits is to post high interest rates," he said. "This is the hard way."
On Friday, shares closed at $74.11.
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January 27, 2002, New York Times, Update / Lewis Ranieri; A Mortgage Man Charts New Seas, by Riva D. Atlas,
THESE days, everyone in finance and many people on Main Street know what a mortgage-backed security is. It was Lewis Ranieri, as a trader at Salomon Brothers in the 1980's, who famously worked to develop the American market for these mortgage packages, which are resold as securities by Fannie Mae and many banks and make mortgages cheaper for homeowners.
But the financier, now 55, left that arena long ago. He is out on his own, an investor in the health care, technology, boating and financial services industries.
Mr. Ranieri, who grew up in Bayside, Queens, started in 1968 working the night shift in the mailroom at Salomon Brothers, then rose to become the head of its mortgage bond group. In 1987, he was abruptly fired by Salomon's chairman, John H. Gutfreund, but quickly built a second successful career, starting his own investment firm, Hyperion Partners, in Uniondale, N.Y. Two years ago, he and his partners made a fortune when they sold Bank United, a Texas savings institution he had acquired in the savings-and-loan crisis of the late 1980's, to Washington Mutual for $1.5 billion.
Since then, Mr. Ranieri has largely dropped out of the public eye, but he said the other day that he had been quite busy. "Only some of the stuff we own happens to be public," he said. He acquired American Marine Holdings, which builds high-performance boats and fishing boats, in the late 1980's, and he is increasingly fascinated by health care, particularly companies that use technology to shift medical treatments like dialysis to the home from the hospital. He is an investor in a large home health care company in Britain, which he declined to name, and has been making smaller investments in this area in the United States.
Mr. Ranieri said he hoped to pick up some bargains among companies hurt by the economic downturn. While he would not name names, he said he was looking at credit card and mortgage companies, as well as "some areas of the technology and telecommunications world that you wouldn't normally associate with me."
He raised millions for Rick Lazio's unsuccessful campaign for United States Senator from New York in 2000, in part because he wanted to support a candidate from Long Island, where he lives and works. He joined the board of Computer Associates, also based on Long Island, for much the same reason and, he said, because he was genuinely interested in technology. "People associate me with mortgages," he said, "but I've been a techie all my life."
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March 9, 2003, New York Times, Investing With: Peter J. Wilby; Salomon Brothers High Yield Bond Fund, by Carol Gould,
INVESTMENT grade bonds now account for about 12 percent of the $587 million Salomon Brothers High Yield Bond fund -- a portfolio that typically owns no such high-rated bonds, says its manager, Peter J. Wilby.
He bought those bonds after the crashes of Enron and WorldCom last year. ''Other bond managers were running for the exits,'' Mr. Wilby said, ''and that created big opportunities for us.''
The overall credit quality of the portfolio's 200 issuers averages a rating of double-B from Standard & Poor's. (Junk bonds are those rated below triple-B.) The portfolio contains big chunks of triple-B bonds as well as single-B bonds bought in recent months.
The fund's trailing 12-month yield is 9.54 percent, compared with 8.94 percent, on average, for high-yield bonds tracked by Morningstar Inc.
The fund's duration, a measure of interest-rate sensitivity, is 4.5 years, mirroring the Salomon Smith Barney High Yield Market index, he said, ''so it has junk bonds' typical sensitivity to interest rates.''
But Mr. Wilby said that as interest rates rose, an improving economy would reduce credit risk, ''allowing a high-yield fund to do quite well in that environment.''
The fund returned 1.7 percent a year, on average, for the three years through February and adjusted for its front-end load, or sales charge, of 4.75 percent. That puts it in the top 16 percent of all high-yield bond funds, which lost 2.3 percent a year, on average, according to Morningstar. The fund returned 3.1 percent in the 12 months through February, adjusted for the load, compared with 0.3 percent for its group.(The fund's current 4.5 percent load is not yet part of Morningstar's database.)
Mr. Wilby, 44, is a managing director of Salomon Brothers Asset Management, the fund's adviser.
The fund can buy corporate or government bonds, typically denominated in dollars, anywhere in the world. Emerging-markets debt, which can account for up to 35 percent of assets, is now about 20 percent, Mr. Wilby said, because he is cautious about overseas risks.
The allocation is based on his 12-month forecast of credit quality.
''Even though the U.S. economy is sluggish,'' he said, ''I see credit quality improving because companies have been punished for carrying too much debt and have spent the last year cleaning up their balance sheets.''
Other factors should also contribute to a strong high-yield market, he said. As for corporate accounting scandals, the worst should be over, he said, and a war with Iraq has already been factored into the market.
The fund is about 5 percentage points overweight in the cable and media industries, compared with the Salomon Smith Barney High Yield Market index, Mr. Wilby said, because of his aggressive buying of bonds in these sectors during their meltdown last summer.
Mr. Wilby works with eight sector analysts to pick individual issuers. Over all, he said, he tends to avoid rapid-growth companies with no cash flow. Currently, he owns issues like AT&T and Sprint, as well as other beaten-down bonds. He also looks for above-average expected 12-month returns, based on an issue's price and yield.
He visits companies' executives, too. ''We want to see that management is competent,'' he said, ''and not so pro-shareholder that they don't understand their fiduciary duty to creditors as well.''
He sells bonds when his industry or credit-quality outlook changes or an issuer's credit quality weakens.
In July, Mr. Wilby bought 9.87 percent subordinated debt due in February 2013 and issued by Cablevision Systems, the cable operator. He paid $67 for each $100 of face value. The bonds now trade at $103.50; they are rated B+ by Standard & Poor's.
Mr. Wilby said the bond's price did not reflect ''what we believe to be the true value of the assets.'' The company generates cash flow, he said, and its core business is solid.
IN August, he bought a 7.25 percent coupon bond due in 2011 and issued by Ford Motor Credit. He paid $92.31 for each $100 in face value of the bonds, which now trade at $93.00. They are rated triple-B by Standard & Poor's.
The biggest bond issuers were under the most selling pressure last spring, Mr. Wilby said, as bond investors reduced their holdings of large-capitalization, investment-grade bonds to diversify their portfolios. ''Ford started trading like a cheap high-yield bond,'' he said, partly because investors exaggerated what they saw as Ford's competitive disadvantage to other automakers.
In July, Mr. Wilby bought 12 percent coupon bonds issued by the Brazilian government and maturing in April 2010. ''The government was under a lot of pressure'' at the time, he said, as investors feared that the Workers' Party candidate for president, Luiz Inácio Lula da Silva, ''would not be market friendly'' if elected. But Mr. Wilby said he thought that those fears were exaggerated.
Market confidence has improved, he added, after Mr. da Silva's victory in October. The bonds, for which he paid $63.50 for each $100 in face value, now trade at $76.75.
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October 3, 2004, New York Times, Openers: Refresh Button; New Universe, Same Master, by Robert Johnson,
At 75, John H. Gutfreund says he's battling to stay "current" in both his professional and personal lives. And he welcomes the struggle.
Mr. Gutfreund worked at Salomon Brothers for 38 years until he left in the wake of a Treasury bond bidding scandal in 1991. He says he resigned; Salomon, now part of Smith Barney, says he was fired. The Securities and Exchange Commission accused him of failing to supervise a trader caught trying to rig the market for Treasury notes; he eventually agreed to pay a $100,000 fine and to never run an American securities business again.
It was a hard fall, especially for someone who had spent almost his entire adult life at Salomon. He arrived in 1953 - after receiving a bachelor's degree from Oberlin College and doing a stint in the Army during the Korean War - and spent three decades rising through the ranks. He was the chairman and chief executive of Salomon during the 1980's, becoming a central character in "Liar's Poker," Michael Lewis's recollection of his experience among the firm's bond traders.
After Mr. Gutfreund left Salomon, he spent more than a decade tending to his personal investments and to several charities. He returned to Wall Street in 2002, but on a smaller scale: he is a senior managing director at C. E. Unterberg, Towbin, the investment banking firm in New York run by Thomas I. Unterberg.
"I help Tommy Unterberg run the place," Mr. Gutfreund said. "We have been friends for a long time, since we went to summer camp together when I was 11 and he was a year younger." The firm has been expanding from its focus on technology into other areas, like companies offering security services and products; Mr. Gutfreund says he welcomes the "chance to learn and grow."
He has three grown sons from his first marriage and a 19-year-old son with his second wife, Susan. "Having a 19-year-old keeps you on edge," he said. "By working, I stay more in touch with the current world, which I need to be."
Each day he rises at 6:30 a.m. and walks from his home on Fifth Avenue overlooking Central Park to his office on Madison Avenue near 45th Street in Midtown Manhattan; he usually arrives at 8:10, he says. In that way, he may resemble one of the masters of the universe in Tom Wolfe's novel "Bonfire of the Vanities," but Mr. Gutfreund plays down the importance of his job.
"I'm a motivator, an adviser," he said. "Someone to attend a client lunch to add some gray hair." Robert Johnson
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October 31, 2006, New York Times, A $700 Million Hedge Fund, Down From $3 Billion, Says It Will Close, by Landon Thomas Jr,
Archeus Capital, a highflying hedge fund that just a year ago had assets of $3 billion, told its investors yesterday that it would close.
The closing of the fund, which was founded and run by two former bond traders from Salomon Brothers, highlights how sensitive hedge fund investors have become to weak performance after last month’s blow-up of Amaranth Advisors. Amaranth is shutting down after a series of bad bets on natural gas.
Like Amaranth, Archeus was a multistrategy fund, although one with a more conservative approach that focused on exploiting arbitrage opportunities in convertible bonds. Archeus, based in Manhattan, began experiencing redemptions last year after its main investment strategy fell out of favor.
In a letter to investors yesterday, Gary K. Kilberg and Peter G. Hirsch, the fund’s founders, blamed the failure of its administrator to maintain accurate records for its closure.
"This failure, and their subsequent inability to properly re-reconcile the fund’s records, led to a series of investor withdrawals from which we have not been able to recover," the two men wrote in the letter.
While the administrative problems undermined investor confidence, Archeus’s performance this year did little to inspire its clients. Through the first week of October, Archeus’s main fund was down 1.9 percent for the year. In their letter, however, Mr. Kilberg and Mr. Hirsch noted that this fund had returned 18.5 percent since July 2005.
Still, during a period when hedge fund returns have come under increased scrutiny and have, on average, lagged the returns of the major stock market indexes, such a return was apparently not enough to keep investors on board.
In the letter, the two men said that all funds in investor accounts would be redeemed "as of the value established on Dec. 31, 2006." The fund has assets of $700 million, Mr. Kilberg and Mr. Hirsch said in their letter.
Mr. Kilberg did not return a message seeking comment.
Archeus's fairly rapid demise underscores how quickly the fortunes can change for hedge funds. Just four years ago, Mr. Kilberg, who as a member of the Salomon Brothers trainee class of 1985 drew a mention in "Liar’s Poker,” had raised billions of dollars for his fund, joining a herd of Wall Street traders who left jobs at large investment banks to reap larger riches by running their own hedge funds.
At its peak, the fund employed 80 people in its New York and London offices.
That trend has become all the more acute over the last two years as senior executives from Goldman Sachs and Morgan Stanley have raised large sums to run their own funds.
But as funds have proliferated, the soaring returns common at the beginning of the decade have been harder to come by, prompting investors to become all the more fickle about sticking with middling funds.
In their letter, the two men said that "continuing redemptions have triggered a spiral of portfolio liquidations" that offset other areas of positive portfolio performance, a common occurrence when a hedge fund has to cope with a wave of investor defections.
Archeus should have no trouble returning investor money. In the letter, the two men said the fund’s remaining assets were held in "highly liquid positions," which they said would make for an orderly redemption process.
"For all the statistics and data, we believe that, ultimately, the hedge fund universe is very much about people," they wrote. "In this regard, we are glad to know you."
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October 4, 1991, New York Times, Credit Markets; Salomon Will Sell Berkshire Notes, by Leslie Wayne,
Salomon Brothers Inc. plans to sell $163.5 million in zero-coupon notes it owns in Berkshire Hathaway Inc., according to a registration statement filed by Berkshire Hathaway with the Securities and Exchange Commission.
The shelf filing covers convertible subordinate notes of the company due in 2004. No date for the sale has been set, a spokesman at Salomon said yesterday.
Warren E. Buffett, who is Berkshire Hathaway's chairman and chief executive, is also Salomon's current chairman. He took over the investment banking company's top job to help carry the firm over the Treasury securities scandal that hit Salomon in early August.
The Berkshire Hathaway notes owned by Salomon were originally offered in September 1989 as part of a much larger issue, for which it was the underwriter. The notes are currently trading around 48, or $480 for each $1,000 of notes, which means that the notes owned by Solomon now are worth somewhat over $78 million.
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October 5, 1991, New York Times, Salomon Agrees to Pay Freddie Mac Fine, by Leslie Wayne,
Salomon Brothers Inc. said today that it would pay a penalty imposed by the Federal Home Loan Mortgage Corporation for falsifying bids in the sale of Government-sponsored bonds. But 17 other Wall Street firms have sought more time to decide whether to pay the fines.
The agency, known as Freddie Mac, has given the others until 9 A.M. Monday to pay penalties resulting from the discovery of inflated orders and faked sales confirmations -- or be barred from future sales of Freddie Mac securities. While the total penalty imposed on the group is only $1 million, the Wall Street firms fear the precedent set by the Freddie Mac action and want more time to review their options.
Leland C. Brendsel, the agency's chairman and chief executive, praised Salomon and expressed hope that the remaining firms would quickly follow suit.
Salomon's action "cleans the slate with Freddie Mac and goes a long way to insuring the integrity of the marketplace," Mr. Brendsel said in a statement. "I hope Salomon's decision is quickly followed by the other dealers."
The action today comes at a critical time both for Wall Street firms that are accused of widespread bid-rigging in a number of different markets and for government-sponsored entities, like Freddie Mac, that have been accused of being lax and are trying to fend off attempts in Congress to be more closely supervised. As a result, Freddie Mac's handling of this scandal is being watched by a Congress increasingly skeptical of the agency's ability to monitor its own affairs.
An investigation conducted over the last several weeks by Freddie Mac found that the 18 dealers had lied to the agency to gain a larger share of the agency's debt underwritings. The fine, imposed late Thursday night, was made equal to 20 percent of the commissions paid to the group in the sale of some $3 billion in securiites in the last two years. A total of 25 banks and Wall Street firms sell the agency's debt, which is used to finance home mortgages.
A similar investigation is taking place at the Federal National Mortgage Association, called Fannie Mae, where many of the 55 dealers that sell Fannie Mae securities, which are also used to finance housing, admitted to inflated orders. David Jeffers, a spokesman for Fannie Mae, said the agency would not "hesitate to admit sanctions up to expulsion" when its investigation is finished. Mr. Jeffers would not say when that might be.
In a statement, the Public Securities Association, which represents the dealers, said the 24-hour deadline for the payment of the fine was "not a reasonable amount of time." The association said almost all of the members of the selling group had met in New York to discuss a course of action.
Joseph Sims, an association spokesman, said he had no idea how many firms might ultimately pay the fine and added that the group felt the 24-hour deadline was a dangerous precedent that did allow enough time to analyze the situation.
Cheryl Regan, a spokeswoman for Freddie Mac, said the agency agreed to an extension since "we're trying to work things out with our dealers and it was a practicality." Firms, however, that do not "indicate an intent to comply" by Monday morning would be expelled from sales beginning that day.
Freddie Mac would not identify the 17 firms, nor indicate the size of the penalty Salomon agreed to pay. In a statement, Salomon, which has admitted to submitting false bids in Treasury auctions, said it was paying the fine to maintain continued participation in the sales.
There was speculation on Wall Street today that the 17 dealers might refuse to pay in a show of strength that would force Freddie Mac to sell its securities through only a handful of dealers. Proponents of this view pointed out that the fines were extremely small and that the issue was one of principle. Mr. Sims of the dealer's association said the dealers wanted to "weigh the pros and cons of paying the fine or losing this business relationship."
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October 21, 1991, New York Times, Bank Sues Salomon and Travelers, by Alison Leigh Cowan,
A Philadelphia savings bank has accused Salomon Brothers Inc., the Travelers Corporation and some top executives at both of colluding to deprive the bank of money it is owed by four real estate partnerships.
The dispute involves real estate partnerships that had attracted investments from more than 200 of Salomon's most prominent current and former employees and comes as the Wall Street firm is struggling mightily to rebound from its admission that it behaved unlawfully in several recent Treasury auctions. Secret Negotiations
The Meritor Savings Bank in Philadelphia, in a little-noticed lawsuit filed in June in Philadelphia County Common Pleas Court, contended that the Salomon group was secretly negotiating to release Travelers and its Prospect Company investment unit from obligations that would insure that the partnerships' loans to Meritor are repaid.
Meritor charges that in return, the Salomon group was negotiating to receive payments that could help reduce adverse tax consequences it now faces.
To satisfy Meritor when the deal was struck in the mid-1980's, Salomon arranged for Prospect, which had a financial stake in the projects, to cover any shortfalls should the rental properties the four partnerships invested in fail to generate enough income to pay their debts. Travelers, the big insurance company, had issued a so-called comfort letter advising Meritor that its policy was to make sure its subsidiaries fulfilled their obligations.
Nonetheless, the Meritor loans, which totaled $59 million, went into default last April.
"In essence," the complaint says, "Traveler, Prospect and Salomon Brothers intend to abandon their obligations and commitments to Meritor in order to minimize their own losses, while leaving the investment partnerships without sufficient funds to satisfy their obligations to Meritor." No Comment
Spokesmen for Travelers and Salomon said over the weekend that it was their companies' policies not to discuss pending litigation.
According to partnership documents filed with the New York County Clerk's office in Manhattan in 1984, at least 216 former and current Salomon employees would have been participants in the real estate deals. They include many of Salomon's top officials at the time, including John H. Gutfreund, Thomas W. Strauss, John G. Meriwether, Paul W. Mozer, and Donald M. Feuerstein, all of whom left the firm shortly after the Treasury market scandals in August.
Other investors were Henry Kaufman, Salomon's former chief economist, and Lewis S. Ranieri, the father of its mortgage-backed operation, who was immortalized in the best-selling book, "Liar's Poker."
Many Properties Purchased
The partnerships were used to buy office buildings in Tampa, Fla.; Denver and San Antonio, as well as an apartment complex in Irving, Tex., long before problems in the real estate market and tax-law changes in 1986 made such deals unattractive.
The partnerships were but a few of the many investment vehicles in real estate and in oil and gas that Salomon often offered its wealthier employees.
"They were good investments," M. Jack Perkin, a former Salomon managing director who quit in 1988, said yesterday. He helped select the properties and remains an investor in the deals. "Back in the early 1980's, there was a lot of syndication going on, and this was another vehicle for key employees to invest in," he said. Defaults and an Injunction
For some time, the properties have not been generating enough income to pay the partnerships' debts, including the $59 million in Meritor loans. Prospect was thought to have been making up the difference up until April, when the loans defaulted.
Meritor, a savings institution rebounding from financial difficulties in the 1980's, in July had disclosed $59 million in new problem loans, a 13 percent increase to its nonperforming assets.
But the savings bank did not disclose the identity of the borrower or the nature of the problem, even though it had already won a temporary injunction from the Common Pleas Court.
The June 5 injunction bars the defendants from "entering into any agreement or understanding with one another" that would violate the partnerships' agreements to Meritor and prohibits the partnerships from making any distributions to the defendants. Earnings Due Today
Meritor investors who learned of the lawsuit last week were told the bank would disclose more information about the loans today when it reports its third-quarter earnings.
"I just think it's interesting that Travelers is running full-page ads saying you can rely on us, and they're just walking away from an obligation," said Gary E. Hindes, the chairman of the Delaware Bay Company, a Meritor stockholder.
Mr. Hindes said he was disappointed that the Salomon partnerships might have been slow to pursue Travelers for the money.
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October 22, 1991, New York Times, No New Salomon Fraud,
The chairman of Salomon Brothers Inc., Warren E. Buffett, told state-level securities regulators today that he would remain at the helm of the investment bank until Federal investigators completed their inquiry of the scandal-plagued firm. Mr. Buffett also said two months of cleaning house at Salomon had turned up no new evidence of wrongdoing. "We have not found a widening of bad behavior. We have looked and looked and looked," Mr. Buffett said in speech to the North American Association of Securities Administrators. XX
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March 21, 1992, New York Times, The Fed Is Investigating Dealings in U.S. Note, by Kenneth N. Gilpin,
The Federal Reserve Bank of New York confirmed yesterday that it was conducting an investigation into a possible squeeze of seven-year Treasury notes.
Reports that the New York Fed and the Treasury Department were asking major government securities dealers about a squeeze were initially carried late Thursday by the Bloomberg News Service.
Concern about the possible squeeze prompted the Fed to send letters on March 10 to all primary dealers -- the 38 banks and investment firms approved for direct dealing with the Federal Reserve Bank of New York -- requesting daily information since March 11 on each firm's immediate and net forward position in the 6 3/8 percent seven-year notes. The request sought information on notes held or controlled through repurchase transactions. An Active Market
The seven-year notes, which were auctioned in January just as interest rates bottomed, have been trading expensively in the repurchase market since February and have become more difficult to borrow since the New York Fed's letter was mailed, traders said.
In the overnight repo market, in which firms use securities as collateral for an overnight loan, the seven-year security is in such demand that it now trades at 3/4 of 1 percent, compared with an overnight financing rate of 4.15 percent. That means a trader who wants to borrow the seven-year notes to satisfy a customer order or cover a short position must agree to lend money at less than 1 percent to the dealer who has the notes.
Peter Bakstansky, a spokesman for the New York Fed, acknowledged the letters had been sent. Officials at the Treasury Department declined comment.
The inquiry is representative of the New York Fed's shift in responsibilities from surveillance of the primary dealers to market surveillance, Mr. Bakstansky said. That change was prompted by the Salomon Brothers scandal that erupted in August and the resulting changes in the government securities market recommended in a January report by the Fed, the Treasury Department and the Securities and Exchange Commission.
Salomon admitted in August that at an auction of two-year notes on May 22 it had bought almost 94 percent of the offering, an amount far in excess of allotments allowed by the Treasury to any one securities firm. Conducting an Inquiry
Mr. Bakstansky said of the current investigation on the seven-year note, "We are suggesting there is a squeeze." "
Credit market participants said reasons for the apparent squeeze had more to do with natural market forces than with any deliberate manipulation.
Most investors who own the 6 3/8 percent issue are probably unwilling to sell, analysts said, because the price of the security in the cash market has fallen sharply since it was auctioned.
Late yesterday the 6 3/8 percent securities were offered at a price of 94 26/32 , to yield 7.35 percent.
Under the new market guidelines, the Treasury Department could decide to "reopen" the issue and sell more of the seven-year notes to eliminate the shortage.
Correction: March 23, 1992, Monday April 8, 1992, Wednesday An article in Business Day on Saturday about the Federal Reserve Bank of New York's investigation of the market for seven-year Treasury notes omitted a word and thus misstated the bank's position on the inquiry. While confirming that the bank had asked 38 dealers for information on their holdings of the notes, a bank spokesman, Peter Bakstansky, said Friday, "We are not suggesting there is a squeeze." An article in Business Day on March 21 about trading the day before in the credit markets misstated the amount of two-year Treasury notes purchased by Salomon Brothers at an auction on May 22, 1991. Salomon bought more than the 35 percent allotment allowed by the Treasury, but not as much as 94 percent.
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January 7, 1993, New York Times, Economist Post Filled By Salomon Brothers, by Jonathan Fuerbringer,
Salomon Brothers yesterday announced the appointment of John P. Lipsky as its first chief economist since the 1988 departure of Henry Kaufman, whose economic insights dominated Wall Street for years.
The firm also named David G. Shulman to the new job of United States equity strategist.
Mr. Lipsky, who has been Salomon's chief economist for Europe, based in London, said his appointment was a sign of the growth and globalization of Salomon's research capabilities since Mr. Kaufman, who hired Mr. Lipsky, left the firm.
"Henry Kaufman became Henry Kaufman," Mr. Lipsky said in an interview yesterday, "because he was almost uniquely right about the inflationary consequences of the economic policies of the late 70's. But I will be happy just to be right."
Mr. Shulman is adding his new job to that of manager of the real estate research group. The new job, he suggested, might give him the opportunity, finally, to be a little upbeat.
The two appointments come as Salomon continues to restructure itself in the wake of the Government securities scandal that became known in August and resulted in the resignation of much of the top management of the firm, with Warren E. Buffett taking on the job of acting chairman.
Mr. Lipsky, 44, said the new management of Salomon includes people "I have respected and worked with for a long time." He added, "I feel comfortable with the direction that they are moving in."
Mr. Lipsky will bring an international bent to the resurrected chief economist job. He said that while he did not intend to be Salomon's sole economic spokesman, there was a feeling in the firm and among clients "that there be a spokesman for the firms's global market view."
Mr. Kaufman, who spent 26 years at Salomon and now heads his own New York-based economic consulting firm, Henry Kaufman & Company, said yesterday that Mr. Lipsky's appointment was "recognizing the in-house talent that I hoped one day would be recognized."
Mr. Shulman, 48, joined Salomon Brothers in 1986. He is a managing director and was appointed to head the real estate research group in January 1990. Before joining Salomon, he was vice president at TCW Realty Advisors in Los Angeles and an associate professor of management and economics at the University of California at Riverside. He has a bachelor's degree from Baruch College in New York City and master's and doctorate degrees from the U.C.L.A. Graduate School of Management.
Mr. Lipsky joined Salomon it 1984, after working for the International Monetary Fund on exchange rate surveillance and on negotiations of economic programs for countries in Latin America and Asia. He earned his bachelor's degree in economics at Wesleyan University in Connecticut and his master's and doctorate in economics from Stanford Unitversity. He will return from London to New York soon.
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January 8, 1993, New York Times, Guilty Plea In Salomon Case Set, by Kenneth N. Gilpin,
Paul W. Mozer, the aggressive former head of Salomon Brothers' lucrative government-securities trading operation, agreed yesterday to plead guilty to lying to the Federal Reserve Bank of New York in connection with a Treasury securities auction.
Mr. Mozer, who was at the center of the bidding scandal that erupted at Salomon in August 1991, made his first appearance in Federal court at an arraignment before Magistrate Leonard A. Bernikow in Manhattan.
His case was assigned to Judge Robert P. Patterson, who has scheduled a hearing for 9 A.M. on Monday, when Mr. Mozer is likely to enter the guilty plea.
As part of his plea agreement, Mr. Mozer is obliged to make a $500,000 payment into a Government escrow account to meet any Securities and Exchange Commission judgment against him for his bidding activities, as well as any private civil claims. The rest of the funds, if any, will go to the Government. False Bids Involved
The two felony counts to which Mr. Mozer will plead guilty concern false bids he submitted at an auction of five-year Treasury notes on Feb. 21, 1991. The two felony charges carry a maximum sentence of 10 years in prison and a $500,000 fine.
In papers detailing its case, the Government said that at that auction, Mr. Mozer had submitted bids in the names of Warburg Asset Management and the Quantum Fund, two Salomon customers. Neither of the two funds knew Salomon was submitting bids in their names.
The bids, which were in fact for Salomon's own account, were submitted at the Federal Reserve Bank of New York in an effort to obtain a greater share of the securities for Salomon than rules allowed.
"What Mr. Mozer pleaded to is what he did -- he submitted two unauthorized bids to the Treasury in the course of the Feb. 21, 1991 auction," Stanley S. Arkin, Mr. Mozer's lawyer, said in a statement.
Mr. Mozer, 37, was dismissed by Salomon in August 1991.
The trading scandal tarred Salomon's standing on Wall Street and forced the resignations of John H. Gutfreund, Salomon's chief executive; Thomas W. Strauss, the firm's president and John W. Meriwether, the vice chairman.
In May 1992, Salomon agreed to pay the Government a total of $290 million in penalties and reserves to settle civil suits for its role in the scandal.
In his statement, Mr. Arkin said Mr. Mozer's actions had already cost him more than $6 million. Client Called Scapegoat
Calling his client a scapegoat, Mr. Arkin noted that unlike Mr. Mozer, Salomon's ousted executives "were admonished with modest administrative fines and suspensions," and that several of Mr. Mozer's former superiors had received lucrative severance packages.
On Monday, Salomon Inc., the firm's parent, said it had reached compensation agreements with Mr. Strauss and Mr. Meriwether. The settlement was said to have provided at least $18 million for Mr. Meriwether and $9 million for Mr. Strauss.
The plea agreement announced yesterday may keep Mr. Mozer out of jail, but his legal battles are far from over.
Mr. Mozer still faces a civil suit brought against him by the S.E.C. for falsifying bids in eight Treasury auctions. He is also accused of record-keeping violations, fraud and insider trading.
The suit says Mr. Mozer benefited from inside information because he sold 46,000 shares of Salomon's common stock on Aug. 6, 1991, days before the scandal was made public.
In addition, Mr. Mozer was named as a defendant in a number of civil suits filed by investors and trading firms.
The Justice Department may file separate antitrust charges against him, and he still faces a hearing to determine how much money was lost as a result of the scandal.
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January 16, 1993, New York Times, 2 Key Executives Resign From Salomon Brothers, by Jonathan Fuerbringer,
Correction Appended
Yesterday was a bad day for Salomon Brothers, the scandal-tinged firm that has been working to re-establish its footing on Wall Street. Two important people in the revival efforts submitted resignations, both after the recent payment of annual bonuses.
Eric R. Rosenfeld, the co-head of fixed-income securities who took direct control of government trading operations in the wake of the Treasury bidding scandal in August 1991, said he was resigning "to do my own thing."
And William H. Strong, the head of Salomon's international investment banking business, announced he was leaving to join a competitor, Morgan Stanley & Company, in Chicago.
Mr. Rosenfeld, in an interview, denied speculation that he was leaving because the firm had decided not to rehire John W. Meriwether, the former vice chairman who recruited Mr. Rosenfeld and was one of the top officials to be forced out after the bidding scandal. A Salomon official said he knew of no decision on whether or not to rehire Mr. Meriwether. William McIntosh, co-head with Mr. Rosenfeld of fixed-income securities trading, will take over the department. Series of Resignations
The swashbuckling image of the firm has changed since the scandal and may have led some employees to look elsewhere. The firm has suffered a series of key resignations since the scandal, and there could be more.
But Mr. Rosenfeld was not one of the swashbucklers. He was the opposite. He said that part of his job of taking over the government trading desk was to teach manners to the firm's traders, who were sometimes accused of being overly aggressive.
"I stepped in in August of 1991 because I thought there was a hole," Mr. Rosenfeld, 39, said. "But I think I have done what I can. This is a window where I can exit and really do my own thing. For the last year and a half I have given it my all and I want to move on."
Mr. Rosenfeld, along with Lawrence E. Hilibrand, worked closely with Mr. Meriwether, the trader who played the high-stakes game of Liar's Poker in the title incident in Michael Lewis's trade-and-tell book about Salomon.
Mr. Merriwether put together a small group of Ph.D.'s who made multibillion-dollar long-term bets on changes in interest rates. This fixed-income arbitrage group sat in the back of Salomon's huge trading room, playing cards, reading the newspapers and keeping an eye on their handful of trades.
Mr. Rosenfeld, in particular, also used the group's quantitative expertise to develop unusual transactions for Salomon's customers, such as complex interest-rate options. When Mr. Meriwether was fired as part of the Treasury bond scandal, Mr. Rosenfeld was first promoted to supervise the government bond desk and later was made co-head of all fixed income.
Mr. Hilibrand, who had reportedly been paid $26 million in 1990, became head of the arbitrage group that traded Solomon's own money. Mr. Hilibrand is expected to stay at Salomon.
Mr. Rosenfeld said he would consider working with Mr. Meriwether in the future, but he said they had not talked about that -- although they remain close friends.
Before joining Salomon in 1984, Mr. Rosenfeld was an assistant professor at the Harvard Business School. He said that when Salmon recruiters called wanting to talk to his students about jobs, he told them: "I've got the best person you can get, and its me." He added that his hiring came "at a weak point; I was grading final exams."
Mr. Strong's sudden resignation came as Salomon is struggling to regain its place in the investment banking business. His duties would be taken over temporarily by executives in London during the search for a replacement, Salomon said.
The 41-year-old investment banker gained respect on Wall Street during the late 1980's while at Salomon. He was named head of Salomon's European investment banking in 1991, and was given credit for rebuilding the once-moribund division into a healthy competitor. He was rewarded last October with the top job in international banking. In his job at Morgan Stanley, Mr. Strong will be responsible for the firm's corporate finance activities in the domestic offices.
On Wall Street, which trades in a cache of titles and bonuses, the move was a surprise.
"A guy with his track record could have gotten a comparable level job with any competitor," one Salomon executive said.
Salomon executives said that Mr. Strong, a native Midwesterner, told them he made the decision for family reasons.
In an interview yesterday, Mr. Strong said his decision to leave Salomon after 13 years was based largely on his admiration for Morgan Stanley. "If your goal in life is to be an investment banker," he said, "what better place to be than at Morgan Stanley?"
Correction: January 20, 1993, Wednesday An article in Business Day on Saturday about the resignations of two executives last week at Salomon Brothers misstated the nature of the 1991 departure of John W. Meriwether, the Salomon vice chairman who left the firm in the midst of a scandal involving its bids for Treasury securities. He resigned under pressure; he was not dismissed. The article also misstated the compensation paid in 1990 to Lawrence E. Hilibrand, a Salomon official. He reportedly received $23 million.
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April 5, 1993, New York Times, U.S. Brokers Go Long Traders, by Kevin Murphy,
Big American investment houses' redoubled efforts in Hong Kong are nudging salaries for top stock-market professionals to match and occasionally exceed levels found in other world markets.
"If you've got China securities experience, you'll find yourself in very hot demand," said Samuel Wan, managing director of the executive search group Norman Broadbent (HK) Ltd. "Top sales, research and even operations people are asking for a lot of money and getting it."
Salomon Brothers Inc.'s chairman and chief executive, Deryck Maughan, recently stopped in Hong Kong to wave the company flag and announce a plan to boost the firm's presence in regional stock markets.
"Our strategy is simple: hire the best people we can find," said Mr. Maughan. "We cannot wait for good trainees to grow. We'll pay the right people now if we can find them."
"Naturally, people have second thoughts about the Americans. Morgan Stanley has been hiring again even though it closed down equities two years ago, not all that long after it first started," said Mr. Wan. "But people in equities aren't risk averse by nature. They're not overly concerned when it's worth their while."
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May 1, 1994, New York Times, Wall Street; Throwing the Book at the Boss,
A NOTE of caution to any foxes in the business of watching over chicken coops: If your coop of choice is in the Wall Street area, you might ask around for the names of a few good lawyers.
Securities regulators have been taking a new tack when it comes to punishing bad guys. Instead of simply throwing the bums out, they're also poking around to find out who the bums' bosses were and charging those people with wrongdoing too.
Late last month, an administrative law judge for the Securities and Exchange Commission said that a former branch manager for Paine Webber would be banned from working as a supervisor for six months. The sanction against Patricia A. Johnson won't much change what she's doing now -- working as a broker, not a supervisor, at Smith Barney Shearson. But the black mark on her record is onerous enough to motivate the one-time "Branch Manager of the Year" to appeal for a reversal, her lawyer said.
The word from Glenn Lawrence, the S.E.C. judge on her case, is a signal for other bosses to heed: The sanction may "serve to deter managerial personnel with other securities firms from taking their supervisory responsibilities lightly."
In case they hadn't already caught on.
Time was, securities regulators didn't bother to chase branch managers, compliance lawyers, and brokerage firm chief executives. The enforcers reasoned that in cases of customer ripoffs by brokers -- or defrauding of the firm itself by traders -- it made the most sense to simply throw the book at the perpetrators.
But things have changed since Wall Street's earthquake of 1991, the year that Salomon Brothers admitted Paul Mozer, the head of its government trading desk, had submitted billions in false bids in U.S. Treasury auctions. When all was said and done in that case, the S.E.C. had found that Salomon's former chairman, president, vice chairman, and legal counsel had all fallen down on their jobs as supervisors.
Today, with the spotlight on Kidder, Peabody & Company, and its astounding $350 million fraud by a former bond trading star, the question, "which bosses will get nailed?" is much on the minds of financial executives. While declining to comment on any specifics of the Kidder case, William McLucas, who runs the enforcement division of the S.E.C., says there is no question the securities cops are very interested in accusing the players who are charged with supervising a violator: "The inclination of the commission is likely to continue to be to push the supervisory cases further up the chain of the command," he said.
In Kidder's case, that could be bad news for its internal auditors. No Kidder customers were hurt by the phony trades, said to have been booked by Joseph Jett, who was fired last month, Kidder emphasizes. "The very nature of this scheme is such that it could only be done with our own money," explains John Liftin, general counsel at Kidder. "What he did was manipulate our accounting system to show phantom profits -- he didn't have access to customers."
But Kidder's bean-counters are, perhaps, at as much risk as much as Mr. Jett's immediate boss, Edward Cerullo, for their failure to see that the trader was booking profits that simply didn't exist. "The ones on the hook are the internal auditors," said John Keefe, a brokerage industry analyst.
For all the worry about cases against those who supervise, audit, or work in compliance at a wrongdoer's firm, there has been far more talk than action. Only 29 cases were brought by the S.E.C. on failure-to-supervise allegations last year, said Jonathan Eisenberg, a lawyer at the Pittsburgh firm of Kirkpatrick & Lockhart. Still, that number "ballooned" from only 7 such cases in 1991, he said.
While that 400 percent-plus gain in failure-to-supervise cases may sound like a giant 'so what?' to most people, it's been a nail-biter for brokerage executives -- and a boon for anyone who makes their living organizing compliance seminars. "The numbers understate the problem" for the industry, Mr. Eisenberg added. "They used to bring almost no supervisory cases, and what this shows is supervisors are now fair game."
As Mr. McLucas sees it, the push to hold supervisors and certain support staff more liable is simply the accountability philosophy that gets the best results. Thus, in the case of stock brokers who sell to the public, "the most effective way to make sure brokers are not overreaching is to impose a burden on the branch manager, and then further up the chain if the systems are bad or if the firm doesn't react to red flags," he said.
Outside the retail stock broker area, it gets trickier. In tracking the value of increasingly sophisticated financial products, for example, brokerage firms need to have systems that assess risk but also evaluate "the behavior and the trades of employees," Mr. McLucas said. "And those systems have to evolve as rapidly as the products and the trading practices do."
Better systems might help, but management doesn't always become more popular when the accountability structure gets tighter. On the retail side of Paine Webber, a pilot "Trade Monitor System" has been up and running for several months, in which branch managers each morning get a computer rundown of the previous day's trades by brokers, including a "red flag" list. In June, managers will begin to be held accountable for following up on red flags, said Joseph Grano, head of Paine Webber's retail system.
That's great for the customers, but not always welcome news to the branch bosses. "My managers have said 'Hey Joe, are you painting a target on my back?' " he said. "I told them the target was always there, and that we're making it easier." Easier for the players who worked to protect customers, perhaps. But in a business where managers share in the bottom line, accountability has some sticky drawbacks.
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September 11, 1998, New York Times, Malaysia Hires Salomon as Bank Advisor,
The Prime Minister of Malaysia, Mahathir Mohamad, who has blamed foreigners for his nation's economic and financial troubles, unexpectedly named Salomon Smith Barney as a special adviser today to help repair the country's ailing banks.
The American investment bank, a unit of Travelers Group, will seek to help Malaysia raise the $10.8 billion it needs for its banks.
"We'll meet with more than 100 institutions in Europe and the U.S. to tell the story," said Deryck Maughan, one of Salomon's co-chief executives. "We are comfortable that Malaysia is a strong investment grade."
Foreign investors have been looking for ways to withdraw money from the country since Mr. Mahathir imposed currency and stock trading curbs last week. The controls shocked foreign investors, whose money from some transactions is now locked in the country for a year and will make it harder for Malaysia and Salomon to raise money abroad.
On Wednesday, Fitch IBCA Inc. cut Malaysia's credit rating to junk status.
Ian Lui, a money manager at Indocam Singapore, said, "The country has taken a lot of measures that scared away the foreign investors." While hiring Salomon will help Malaysia "get in the experts who know what they are doing,'" he said, "the thing now is to wait and see what comes out of this arrangement."
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February 24, 2009, New York Times, Fed Chairman Says Recession Will Extend Through the Year, by Catherine Rampell and Jack Healy,
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