Brown pays $510,000 to settle New Orleans suit Louisiana airport accused Baltimore brokerage of Treasury bond markups

Litigation

October 14, 1998|By BLOOMBERG NEWS

NEW ORLEANS STAFF WRITER BILL ATKINSON CONTRIBUTED TO THIS ARTICLE. — NEW ORLEANS -- New Orleans International Airport said yesterday that Baltimore-based Alex. Brown & Sons Inc. paid $510,000 to settle a previously undisclosed suit over yield burning -- the markup of Treasury securities prices in debt refundings.

The settlement reached in June involved a 1993 bond refunding handled by Alex. Brown, now BT Alex. Brown Inc., a subsidiary of Bankers Trust Corp. The accord is separate from a yield-burning suit New Orleans has against Alex. Brown and Smith Barney Inc., now Salomon Smith Barney Inc.

The settlement is one of the first in which a municipal borrower recovered funds lost through overcharging for the U.S. Treasury bonds used in municipal bond refundings.

"We have resolved the case out of court and amicably," said New Orleans Mayor Marc Morial. "I hope we can do the same with the other yield-burning case."

The accord comes amid an investigation by federal regulators into the practice of yield burning on Wall Street. Indeed, inquiries from the Securities and Exchange Commission flagged the airport to the situation.

"The airport was first put on notice that it had a problem when it received subpoenas from the SEC asking for documents related to that transaction," said Paul Mirabile, a lawyer for the New Orleans Aviation Board.

Aside from confirming the settlement, a spokesman for New York-based Bankers Trust Corp., the parent of BT Alex. Brown, declined comment yesterday.

Shares of Bankers Trust's stock closed yesterday at $52.4375, down $1.8125.

The settlement was reached just before the start of a potentially embarrassing trial in New Orleans Civil District Court. It was also slightly less than a year after the suit was filed. "That's quite fast in legal time," Mirabile said.

The pact is also unusual because the other two known settlements for yield-burning suits were reached and announced with great fanfare. Those are Core-states Financial Corp.'s agreement in April to pay $3.7 million to settle yield-burning charges with the SEC, IRS and Justice Department; and Lazard Freres & Co.'s $9 million settlement with the Los Angeles Metropolitan Transportation Authority last month.

Morial, who just started his second four-year term as mayor, said discussions over the city's suit with BT Alex. Brown and Salomon Smith Barney were continuing, although he doesn't see a settlement soon.

"You have to give the lawyers an opportunity to fight it out for a while, and when both sides are softened up a little bit, then the settlement prospects are a little bit better," Morial said. "I'm hopeful we can solve it, but if we don't, we are prepared to try the case."

Pub Date: 10/14/98

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