WASHINGTON P — WASHINGTON -- The chairman of the Securities and Exchange Commission said yesterday that his agency was investigating whether the improper bids for Treasury securities submitted by Salomon Bros. were part of a broader effort by a group of investment houses to corner the bond market.
In a letter sent to Congress yesterday, the chairman, Richard C. Breeden, said that the commission had issued more than 135 subpoenas and requests for information to determine whether Salomon acted alone in violating government securities regulations or had worked with other bond-trading firms to drive up the price of bonds. He did not identify any other firms.
"While it appeared that there may have been some concerted activity in the auction, the issue of whether this was a part of a market manipulation required a careful assessment of the activity in the after-market trading for these securities," Mr. Breeden said, referring to a May auction of two-year Treasury notes.
Mr. Breeden said that the matter had been referred to the antitrust division of the Justice Department and the U.S. attorney in Manhattan for criminal investigation.
Salomon has admitted that it placed bids at Treasury auctions for more than the legal limit of 35 percent of the total amount of securities being offered. It also admitted to the unauthorized use of customers' names to place bids.
Providing his most detailed picture so far of the rapidly expanding investigation, Mr. Breeden also questioned whether senior executives at Salomon, by failing to report the infractions, may have actually covered up their own participation.
"Without seeking to draw, at this time, any conclusions regarding whether the law was violated and, if so, by whom, the firm's silence throughout this time frame raises serious questions about whether there was a climate within Salomon that appeared to tolerate or even to encourage wrongdoing," Mr. Breeden said in a letter to Sen. Christopher J. Dodd, D-Conn., who heads the Senate banking subcommittee on securities.
Mr. Dodd last month requested information from the regulators on the Salomon case in an effort to assess how Congress should deal with the Government Securities Act, which regulates the industry and expires next month.
Mr. Breeden is scheduled to appear today with senior officials of the Treasury and the Federal Reserve Board, and with Warren E. Buffett, the new chairman of Salomon Brothers, before a House panel that is investigating the Salomon scandal.
For months, Treasury officials and the SEC have been at odds over how to rewrite the laws supervising the government securities market. Mr. Breeden has sought a stronger role for the SEC in regulating the market, which is now supervised primarily by the Treasury.
A separate letter sent to Mr. Dodd yesterday by Alan Greenspan, chairman of the Federal Reserve Board, said that officials of the Federal Reserve Bank in New York initially detected irregular bids from Salomon Brothers for Treasury notes in February, even though it was only last month that the government formally acknowledged that Salomon had violated federal regulations.
The irregularities were reported by the Fed to the Treasury Department and ultimately led to the scandal that developed last month at Salomon.
But in the time between the detection of improper bids in February and last month, Salomon has acknowledged that traders at the firm continued to violate bidding rules.
Mr. Greenspan's letter appeared to raise the new question of why it took from February until last month for the government to expose the improper Salomon bids and prevent the firm from continuing to violate federal regulations during Treasury auctions in April and May.
In his letter, Mr. Greenspan distanced the Fed from the growing scandal, emphasizing that it "does not have express statutory authority to regulate or supervise the primary dealers" of government securities.
Nonetheless, he said that it was the staff of the Federal Reserve Bank in New York that "raised a question with the Treasury about the bids by two entities thought to be closely affiliated, which, if awarded and added together would have exceeded the 35 percent limit set by the Treasury on awards to a single bidder."