SEC bans Gutfreund after Salomon securities scandal

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JOHN GUTFREUND, the long- time chief executive of Salomon Brothers forced out by last year's US Treasury auction scandal, was yesterday banned for life from heading a securities firm.

Mr Gutfreund and two other former managers, the president, Thomas Strauss, and the vice- chairman, John Meriwether, played no part in the bid-rigging scheme executed by Salomon's government securities desk, the US Securities and Exchange Commission said in announcing a settlement. But they failed to adequately supervise the desk, the regulators said.

None of the executives, however, apparently broke the law. Salomon Brothers itself agreed last spring to pay dollars 290m ( pounds 192m) to settle its charges in connection with the scandal, and also escaped criminal charge.

Earlier this week, Salomon's two senior government traders, Paul Mozer and Thomas Murphy, were charged with submitting illegal bids in an attempt to manipulate the market in US Treasury securities. On almost a dozen occasions in 1990 and 1991, the desk entered unauthorised bids on behalf of clients to obtain an illegally large portion of the auctioned securities.

Salomon, and several as-yet unindicted co-conspirators, then tried to use their monopoly on the issue to squeeze higher profits out of buyers, who were often desperately short of the securities. Figures have since shown that the illegal strategy largely failed to produce better profits than Salomon earned through its conventional trading strategies.

Word of the scheme first became public in August 1991, causing the firm to fire Mr Mozer and Mr Murphy, and Salomon's senior management and legal counsel resigned soon afterwards. Mr Gutfreund has been widely criticised for having failed to report the scheme to regulators when he was first apprised of it in April of that year.

As part of yesterday's deal, Mr Gutfreund will also pay a dollars 100,000 fine, while Mr Strauss will pay dollars 75,000 and receive a six-month suspension from US securities markets. Mr Meriwether will be suspended for three months, and will pay dollars 50,000.

When Mr Gutfreund resigned, Warren Buffett, the firm's largest shareholder, agreed to step in as interim chief executive, insisting on the firm's complete co-operation with the government investigation. He went on to make sweeping changes before relinquishing his duties to Deryck Maughan, the man he named to head Salomon Brothers, and Robert Denham, Mr Buffett's legal counsel and now the chairman of Salomon's corporate parent.