WASHINGTON -- The troubles facing Salomon Brothers Inc. mounted yesterday as securities regulators in 33 states announced that they have launched a joint investigation of the firm's recent abuses in the government securities market.
The investigation is separate from those of federal agencies that already have announced that they are investigating admissions by Salomon Brothers that it bought government securities in Treasury auctions in the names of customers over the last year without their permission and exceeded limits on the total amount of securities it could buy.
John Perkins, president of the North American Securities Administrators Association, which is coordinating the states' investigation, said states have a unique perspective on the scandal. "Our focus is ... on the investors who reside in each of our states," said Mr. Perkins, who is Missouri's securities commissioner.
"For example, the Salomon Brothers scandal is of concern to us in Missouri because oof the potential impact of higher prices for Treasury securities purchased for pension funds and money market mututal funds."
Salomon Brothers is a registered broker-dealer and investment adviser licensed in states nationwide. State securities agencies are responsible for taking action in cases of fraud and unfair or unethical business practices by broker-dealers that are licensed within their borders.
The announcement of the states' probe followed a joint meeting in Washington yesterday of NASAA and the National Association of Secretaries of State. The latter group is involved because the securities divisions of 11 states are part of the office of secretary of state.
Mr. Perkins said states have several options in a case of such "serious magnitude," including revoking or suspending the broker dealer's license or levying financial penalities. Also heading up the states' probe with Mr. Perkins is Nancy Smith, New Mexico securities division director.
Mr. Perkins and Ms. Smith said that representatives of the group already have met with SEC officials investigating the Salomon Brothers situation, have had preliminary conversations with national and state-level attorneys for Salomon Brothers, and have attended or planned meetings with officials at the Treasury Department, the Federal Reserve, and key congressional committees.
In addition to the District of Columbia, securities agencies from the following states are participating: Alaska, Arkansas, California, Colorado, Georgoa, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Texas, Utah, Virginia, Washington, West Virginia and Wisconsin.
The probe is not the first such joint effort by state securities regulators. Forty-two states imposed a total of $8.9 million in penalties against Drexel Burnham Lambert Inc. after that firm's felony guilty pleas in 1989. And in 1985, the guilty plea of E.F. Hutton & Co. to more than 2,000 counts of mail and wire fraud arising from a check-kiting scheme led more than a dozen states to collect roughly $1 million in fines and other penalties.