Officials in the administration of New York City Mayor David N. Dinkins said yesterday they are examining the city's underwriter selection process in an attempt to mollify concerns following an investigation into a controversial syndicate appointment.

Officials in the city's law department, headed by corporation counsel O. Peter Sherwood, and the staff of the city's Procurement Policy Board, which sets regulations for the awarding of city contracts, confirmed they are reviewing the city's underwriter selection process.

Officials at the agencies say the review will include determining if the city needs to change the way it selects bond underwriters amid charges that political favoritism plays a role in the appointment process.

The measures are in reaction to a September 1993 report issued by the city's Department of Investigation concerning a March 1992 city bond syndicate selection, city officials said.

The department had investigated charges that city Comptroller Elizabeth Holtzman violated city charter conflict of interest rules by appointing Fleet Securities as a co-manager in the city's bond syndicate.

The appointment, also approved by the Dinkins administration, was made after Holtzman's failed U.S. Senate campaign received a $450,000 loan from Fleet's banking affiliate.

In the report, the department found Holtzman "grossly negligent." A law enforcement official recently confirmed that the Department of Investigation is also conducting a second investigation into Holtzman's general fundraising activities.

The department referred its report to the city's Conflict of Interest Board, which will hold hearings on the matter and determine if Holtzman violated the city charter.

As for the other reviews, Sherwood of the city's law department said, "We haven't looked at the system in a while. We just thought that in view of [the DOI report] we should take another look at the process."

It is unknown how far along Sherwood is in his review of the underwriting process. At least one top city finance official, who requested anonymity, has yet to be contacted by Sherwood on the matter.

John Grubin, chairman of the city's procurement board and a may-oral appointee, said he has introduced several proposals to the procurement board for consideration, also in reaction to the report.

In a memo to board members, Grubin recommended that the city sell bonds based on using "sealed competitive bidding from a pre-qualified list," and that the city council "bar those who give campaign contributions above a certain amount from doing business with the city."

Grubin also recommended in the memo that the city follow board rules when selecting underwriters, adding that his recommendations are separate from those that may be made by the board's staff after its review.

The city currently continues to sell the bulk of its debt through negotiated offerings.

The city yesterday priced about $600 million in general obligation bonds through a negotiated underwriting team led by bookrunning senior manager Lehman Brothers.

Michael W. Geffrard, director of the city Office of Public Finance said in a Sept. 30 article in The Bond Buyer that the transaction will be "one of the most uninteresting deals we have done in a while."

Geffrard's statement prompted several market analysts to say that the city should issue the bonds through a competitive bid.

Geffrard, in an interview on Monday, defended the decision to sell the bonds through a negotiated deal because the city was considering the use of derivative products as part of the transaction. Yesterday, the city was considering the use of $40 million of derivatives, but final details were unavailable before press time. City officials said the deal offers $25 million of variable-rate bonds.

Yesterday, Geffrard said, "If I had the chance to do this deal over again, I'd do it this way.

"This is the right decision given the market, and we got excellent service from Lehman," he said. "There was not a lot of institutional demand in the market, and without strong institutional demand, it's difficult to get aggressive pricing through an auction."

Issuers sell derivatives in an attempt to lower borrowing costs. Underwriters say derivatives and other complicated financings must be sold by negotiating the price and terms of the products with potential buyers.

Geffrard said the city could not separate the derivative portion of the deal from the part featuring plain, vanilla general obligation bonds, because it could violate structural requirements mandated by state finance law.

But Alan G. Hevesi, who recently defeated Holtzman to win the Democratic nomination for city comptroller, said yesterday, "This is the kind of deal that completely lends itself to competitive bidding. No refunding requirements, no mini-bonds. I would explore every avenue for doing a deal like this competitively, or a portion of it."

The selection of underwriters to the city's bond underwriting syndicate is made by the finance staffs of the mayor and the comptroller, although both elected officials have final say over all appointments.

Firms are selected after submitting a request for proposal document to the city. Firms must also answer a series of finance-related questions, as well as questions about social policies, such as the firm's affirmative action policies and its views on social issues, such as gay rights.

Amid the administration's review of its underwriter selection, Dinkins' Republican-Liberal opponent Rudolph Giuliani said that if elected mayor he would change the city's bond underwriter selection process by delegating appointments to a panel of finance officials.

In a Sept. 20 article in The Bond Buyer, Giuliani said, he would propose a selection system similar to the one used by officials in Kentucky. He said a the administration of former Mayor Edward I. Koch used a similar method to prevent conflicts of interest.

"There was a reason these questions did not occur in the Koch administration, but now we have a myriad of questions under the Dinkins' and Holtzman administrations," Giuliani said.

But city officials responded to the proposal by saying that the city's current process for selecting underwriters is adequate.

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