The transatlantic saga of European arrests, worthless corporate bonds, a Swiss man, and the Federal Bureau of Investigation continued yesterday as regulators censured Citibank N.A.

Tom Baucom, a spokesman for the Office of the Comptroller of the Currency, which was responsible for the censure, said the action makes public "that we are criticizing the bank."

Citibank agreed to an Order and Censure from the comptroller's office for failing to ensure proper destruction of canceled corporate bond certificates. The bank neither admitted nor denied guilt and received no fines, a Citibank release says.

"The order lays out a whole list of requirements that we have to meet," John M. Morris, a Citibank spokesman, said. "Our reason for not contesting it is that we are already in compliance with what the OCC has asked."

"We are told by our lawyers that [the censure] is the reprimand of the lowest severity," he added.

The action against Citibank stems from 3,500 boxes of canceled certificates totaling $111 billion, some of which have since reappeared.

From September 1985 to December 1986, Citibank, as part of its transfer agent duties to securities issuers, sent the canceled certificates to a New Jersey company called MSM Corp. for destruction at a Brooklyn site. Despite MSM's signed affidavits that it chemically destroyed the certificates, they began resurfacing, initially in Europe, as collateral for loans.

Some of the bonds turned up unperforated, Mr. Morris said.

"That's a human and mechanical error," he said. "Perforation is a mechanical process." But even if the certificates were unperforated, they were canceled on a book entry basis and anyone accepting them has "a duty of inquiry," Mr. Morris said. MSM is now defunct, he said.

Some of those canceled bonds allegedly found their way into the hands of Roman Nikolaus Abegg, a Swiss citizen, according to FBI special agent Paul Miller. In February, the FBI arrested Dr. Abegg in connection with an international bond scam that involved a number of arrests in Europe, agent Miller said. Though agent Miller said Dr. Abegg was a "key figure," it would be improper to describe him as a mastermind.

"There were a lot of people arrested," he said. Agent Miller, however, was unaware of any others who had been arrested in the United States.

Dr. Abegg was arrested on a Feb. 5 warrant charging him with interstate transport of stolen securities and bank fraud. He was also charged with wire fraud and transportation of stolen securities stemming from a later affidavit the FBI filed with the U.S. Magistrate of West Palm Beach, Fla. He was subsequently indicated by a federal grand jury. He is currently in custody awaiting trial in October, agent Miller said.

According to the FBI, borrowers trying to secure a $465,000 loan from Miners National Bank in Pottsville, Pa., presented $650,000 in corporate bonds as collateral. Dr. Abegg claimed to be an official of a company called Balco International B.V. and said he was authorized to use those bonds as collateral.

But Miners Bank officials learned through Citibank of New York that the bonds had been canceled in the 1970s. Dr. Abegg then left for Florida to pursue another deal, agent Miller said.

There, FBI officials intercepted a $47.8 million shipment of those bonds coming to southern Florida from Switzerland, the agent said.

In its release, the comptroller's office said Citibank violated the Securities Exchange Act of 1934 and Securities and Exchange Commission transfer agent rules. The OCC censured the bank for its violations and has required it to undertake a number of remedial steps.

"The OCC's examination revealed a pattern of neglect of the bank's obligations to reasonably safeguard its securities certificates and to make appropriate and timely notifications to federal regulators of the loss or potential threat of these certificates," the OCC's release says.

For its part, Citibank said it canceled the certificates and they have no financial value. The bank says it has no financial value. The bank says it has no financial exposure to any of those canceled certificates. Citibank added that when it learned of the certificates' reappearance, it worked with the FBI, the Drug Enforcement Agency, and Interpol on the investigation. It also alerted the Securities Information Center, the Depository Trust Co., the New York Stock Exchange, the National Association of Securities Dealers, among others, to the scam. Since 1987, Citibank has destroyed all canceled certificates on its premises and using its own workers.

"Citibank believes that it has in place sound procedures and controls for canceling and destroying certificates, as well as reporting procedures in the event of stolen or missing securities, and that it already is in substantial compliance with the actions called for in the comptroller's order," a Citibank release says.

Elsewhere yesterday, E-II Holdings Inc. announced plans to file a pre-planned Chapter 11 petition and reorganization within 30 days.

A company release says E-II has reached agreement in principal with an ad hoc committee of holders of its 12.85% senior subordinated notes due 1997 and 13.05% subordinated debentures due 1999 and some other debt holders on a sweeping recapitalization of the company. The release says the company had always expected that a prearranged plan would be the end step its restructuring process.

E-II is the parent of Samsonite Corp., Culligan International Co., and McGregor Corp. The operating subsidiaries will not file for Chapter 11 protection and their operations should continue unaffected.

"The subsidiaries have no responsibility for the debt of E-II and have always been separated from the restructuring," the company's release says.

Under the plan, note and debenture holders would receive cash, debt and nearly all of the company's equity. The company would maintain full ownership of its independent operating subsidiaries, including Samsonite, Culligan, McGregor, and Pet Specialties.

In secondary trading yesterday, high-grade bond prices moved up about 3/8 point, while high-yield bonds gained about 1/4, traders said.

New Issues

Bellsouth Telecomm issued $250 million of 8.250% debentures due 2032. Noncallable for 10 years, the bonds were priced at 99 to yield 8.336% or 54 basis points over comparable Treasuries. Both Moody's Investors Service and Standard & Poor's Corp. assigned Triple-A ratings. Goldman, Sachs & Co. lead managed the offering.

First Bank System issued $125 million of 8% subordinated notes due 2004. The noncallable notes were priced at 99.832 to yield 8.022% or 85 basis points over comparable Treasuries. Moody's rates the offering Baal, while Standard & Poor's rates it BBB-plus. J.P. Morgan Securities Inc. lead managed the offering.

Federal Home Loan Banks issued $130 million of 6.48% notes due 1997 at par. Noncallable for a year, the notes were priced to yield 14 basis points over comparable Treasuries. Goldman, Sachs & Co. sole managed the offering.

Federal Home Loan Banks issued $110 million of 5.44% notes due 1995 at par. Noncallable for a year, the notes were priced to yield eight basis points over comparable Treasuries. Merrill Lynch managed the offering.

Federal Home Loan Banks issued $100 million of 5.50% step-up notes due 1997 at par. The notes were priced to yield 60 basis points over when-issued two-year Treasuries. They are noncallable for two years. After that, the coupon increases to 7-1/8%. Lehman Brothers managed the offering.

Federal Home Loan Banks issued $90 million of 5.40% noted due 1995 at par. The noncallable notes were priced to yield four basis points over comparable Treasuries. Goldman Sachs sole managed the offering.

Duff & Phelps Credit Rating Co. has put Commonwealth Edison Co.'s securities on Rating Watch-Unfavorable, a rating agency release says.

The listing affects Commonwealth Edison's first mortgage bonds and collateralized pollution control revenue bonds rated A-minus; debentures, notes, and non-collateralized pollution control revenue bonds and preferred stock rated BBB-plus; preference stock rated BBB; and commercial paper rated Duff 1-minus.

Duff & Phelps has given an A-minus to the first mortgage bonds and a BBB-plus rating to the unsecured notes that make up Commonwealth Edison's new shelf registration totaling $900 million.

"The rating action follows an unexpectedly very negative interim order by the Illinois Commerce Commission addressing several issues left open by the state Supreme Court's remand of the March 1991 rate decision. The interim order, approved by the ICC [Wednesday], is completely contrary to the March 1991 rate order," Duff & Phelps' release says.

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