NEW YORK -- In a costly and humbling conclusion to a scandal that threatened the viability of one of the brashest giants on Wall Street, Salomon Inc. agreed yesterday to pay $290 million to settle violations of securities regulations that protect the nation's trillion-dollar market for government debt.
The infractions have already led to sweeping changes within the firm, including a wholesale turnover in senior management and more subtle changes in how the government distributes its debt.
Salomon's fine was second in size only to the $650 million paid by Drexel Burnham Lambert Inc. for numerous serious violations of securities law during the 1980s. Given the scope of Salomon's transgressions, many observers said the size of the penalty was significant.
"The question is," said Ira Lee Sorkin, an attorney who formerly headed the SEC's New York office, "does a number of $290 million cause other firms on the street to be very cautious and hesitant to engage in this type of conduct. The answer is yes. That's a significant amount of money to any firm."
Still, Wall Street was encouraged by the terms of the settlement. Salomon's stock rose $2.875, to $33.50 a share, about where it was a year ago but up more than 50 percent from where it plunged in the middle of last summer when disaster appeared to loom.
"It's one thing to get a speeding ticket and another to lose your license," said Perrin Long, an analyst with First Michigan Securities. "Salomon got a ticket, but they kept their license."
Yesterday's agreement will spare Salomon from facing criminal charges. But its legal troubles are not over and the direct costs stemming from the scandal continue to mount.
The company had reserved $200 million to cover related costs, but announced yesterday it was taking an additional pre-tax charge of $185 million to fully cover claims.
Salomon admitted last summer that it falsified customer orders for government securities in several major auctions. The auctions are the primary means used by the Treasury department to finance the country's vast debt, and Salomon has long played a pivotal role as the most important of the 38 "primary dealers" authorized to deal directly with the Federal Reserve.
As a result of these and other deceptive moves, Salomon was able to acquire a larger portion of certain government securities in the auctions than permitted under regulations.
That, according to competitors, gave Salomon the ability to temporarily squeeze the market and manipulate prices to its benefit.
An internal investigation by Salomon concluded the firm earned less than $4.6 million from the auctions in question and in some cases had lost money. It has denied ever effectively cornering the market.
As part of its settlement, Salomon agreed to a two-month suspension from trading as a primary dealer in the Treasury auctions, a business that has continued to earn profits. Still, with yesterday's announcement, the end of Salomon's most pressing problems appears imminent.
"We believe that the intense regulatory and investigative focus on Salomon has ended," said Salomon Chief Executive Warren E. Buffett. "We can now move forward to show that high ethical standards and meaningful profits are not only compatible objectives, but ones that can reinforce each other."
The settlement with the Securities and Exchange Commission and the Justice Department includes $190 million in fines and forfeitures. The remaining $100 million will be used to compensate victims who lost money as a result of the firm's wrongdoing.
The announcement could be a swan song of sorts for Mr. Buffett, who became head of the securities firm -- in which he indirectly owns a large stake -- as the scandal broke and its future appeared in doubt.
He has said he would return to his other job, as head of the Nebraska-based conglomerate Berkshire Hathaway, when the government investigation wound down.
"The events of today mean he will soon go back to Omaha," said Salomon spokesman Robert Baker Jr. "He will, however, remain an interested board member and a board member who I do not think will be ignored."
Despite lost business, Salomon has remained profitable, with first-quarter earnings approaching the amount of yesterday's penalties and a franchise that appears intact.
"They weren't indicted. They paid a big fine; that's it," said James Hanbury, a securities analyst with Wertheim Schroder, a New York investment firm. "Now, they can put it behind them."