Salomon's improper bids netted at least $3.3 million

October 25, 1991|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK -- Salomon Bros. Inc. said yesterday that its profits from improper bids in eight Treasury bond auctions amounted to between $3.3 million and $4.6 million, far less than had been speculated.

The announcement came after a three-month internal investigation by Salomon as part of a report on its improper actions to various federal agencies investigating the activities.

Because of the complexity involved, Salomon had not been able to determine the economic impact of its misconduct or the profitability of its government bond operations.

The release by Salomon suggested that its government treasury bond operations produced volatile earnings. For the first half of the year, it earned about $15 million, or 7 percent of the overall profits for the company's brokerage operations.

For seven of the eight auctions where wrongdoing took place, results ranged from a $2.3 million profit to a $5.6 million loss, for an aggregate profit of about $1.9 million, with an indeterminate amount coming from illicit dealings. The largest loss and the largest violation, Salomon said, occurred in the February auction for five-year notes. Salomon, which could legally purchase 35 percent of the notes offered, used fraudulent bids to buy 66 percent. In the eighth auction, Salomon earned between $16.7 million to $18.4 million, with about $3 million to $3.3 million coming from inappropriate bids, the firm said.

The investigation of Salomon's operations began in July and accelerated in mid-August after a management shake-up led to the firing of Chief Executive John H. Gutfreund and other executives.

In comments yesterday before institutional investors, Warrent Buffett, named temporary head of the firm after Mr. Gutfreund left, said the investigation had revealed more crimes. The most notable involved widespread abuse by Salomon and other major firms in the market for debt issued by the semi-autonomous government agencies. All four people implicated in the scandal have been fired.

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