Shortly before the Salomon Bros. scandal erupted, Paul W. Mozer, the bond trader the firm has blamed for ordering illegal trades, sold about $1.7 million worth of Salomon Inc. stock, the firm confirmed yesterday.
When the sale of 46,000 shares was discovered after the firm disclosed illegal bond trading on Aug. 9, the proceeds were frozen in Mr. Mozer's account in Salomon's private investment division, a Salomon spokesman confirmed. The firm's managing directors are required to conduct all securities transactions through the division.
Salomon Brothers and Mr. Mozer's lawyer said that Mr. Mozer had offered to reverse or rescind the sale. Salomon's stock price sank sharply after the scandal was revealed, so it would cost Mr. Mozer hundreds of thousands of dollars to rescind the sale.
His lawyer denied that any violation of insider trading laws had occurred.
The disclosure came as Moody's Investors Service Inc., the bond-rating agency, dealt the firm another mild blow, lowering the ratings on billions of dollars of Salomon's debt.
In the weeks before the scandal erupted, Salomon's stock hovered around $36. Yesterday, it closed at $25.375, up 12 1/2 cents on the New York Stock Exchange, making the shares sold by Mr. Mozer worth about $500,000 less than he evidently had received.
Mr. Mozer, according to the details of the scandal Salomon has acknowledged, made the firm's top managers aware of a bidding violation in April. In May, he supervised bidding at a Treasury auction that the firm said violated Treasury rules. In July, the firm hired an outside law firm to do an internal investigation because top management was not happy with the answers it was getting.
The investment bank first acknowledged violating Treasury regulations for bidding for Treasury securities on Aug. 9. Several days later, the firm acknowledged that top executives, including the chairman, the president and a vice chairman, had known of one violation since April but had failed to report it.
Subsequently, the three resigned, and Warren E. Buffett, the Omaha investor whose Berkshire Hathaway Inc. has a large Salomon stake, took over as interim chairman. The board dismissed Mr. Mozer.
In a statement, Lee Richards, Mr. Mozer's lawyer, said: "Paul Mozer did not sell shares in Salomon based on inside information. Mozer sold shares of Salomon at a time when he was not aware of any plans by the company to make any public announcement.
"When he learned of the public announcement on Aug. 9, he instructed the company through counsel to reverse or rescind the trades."
A Salomon spokesman said, "When the appropriate people at the firm heard of this, they froze the proceeds in his account, and the firm notified the Securities and Exchange Commission."
Neither the spokesman nor Mr. Richards would give the exact date of the sale.