Word: bonding
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...investing, if not his investment-banking, savvy, assumed Solly's chairmanship after the board forced chairman John Gutfreund and two other top executives to step down. Buffett immediately brought in Deryck C. Maughan, 43, who until recently ran Salomon's Asian operations from Tokyo, and jettisoned two bond traders. Executives admitted that the firm had violated the rules that prohibit any one bidder from buying more than 35% of a single issue at a Treasury auction, and that they had skirted regulations barring a firm from submitting bids in its customers' names without their authorization in order to conceal such...
...decades, the government securities market has been considered the world's safest haven for investors. Unlike stocks and bonds, both of which were plagued by a series of insider-trading cases during the 1980s, the $2.2 trillion market for Treasury instruments was thought to be too big to rig. The Salomon scandal shook that conventional wisdom and aroused suspicion that other firms might be playing similar games. Consequently, an intimidating array of investigations by the Federal Reserve Bank, the Justice Department, the Securities and Exchange Commission -- where enforcement director William McLucas is personally heading the inquiry -- and the New York...
...seeking detailed information from all dealers, brokerages and commercial banks authorized to trade Treasuries, as well as from individual bond traders employed at those firms. The Treasury Department is re-examining the records of every auction since 1986, a total of more than 200, searching for evidence of collusion with customers to violate the 35% rule. Industry analysts expect only minor infractions to turn up. Still, says Howard Sirota, a New York City securities attorney, "this proves that the market isn't quite as pristine and squeaky clean as its participants would have us believe...
Buffett's internal reforms, announced shortly after he and Maughan took up their posts, could cost Salomon some of its high-flying bond traders, who could bolt from the firm once they receive this year's bonuses. If individual bonuses are decoupled from the performance of business units in order to eliminate the motivation for overly aggressive trading, some traders may jump ship. Says a former Salomon trader: "People who have had deals like that know they can get them someplace else...
...Washington lawmakers called for tighter regulation of the $2.2 trillion government securities market. Declared Congressman Edward Markey, a Massachusetts Democrat who chairs a subcommittee that oversees Treasury bond trading: "The issue is the integrity of the most important financial marketplace in the world." Markey blamed lax regulation for permitting Salomon to display "a cavalier disregard for the rules." Democratic Senator Christopher Dodd of Connecticut demanded that Treasury Secretary Nicholas Brady conduct a "full review" of the department's auction rules. With a $300 billion federal budget deficit to finance, Washington cannot afford to scare any bond buyers away...