DLJ, Carroll McEntee to pay fines settling charges of false bids in Treasury market.

WASHINGTON -- Two primary dealers in government securities have agreed to pay fines to settle charges that they submitted false noncompetitive bids in Treasury auctions, the Securities and Exchange Commission announced yesterday.

Donaldson, Lufkin & Jenrette Securities Corp. agreed to pay a civil penalty of $50,000 and another $100,000 in prejudgment interest to settle charges that the firm submitted inaccurate bids in auctions from March 1989 through August 1991.

Carroll McEntee & McGinley Securities Inc. agreed to pay a civil fine of $30,000 to settle charges in connection with auctions during the same period.

Under the terms of the settlements, both firms did not admit any wrongdoing but agreed to desist from any future violations of federal record-keeping rules for trading securities.

In noncompetitive bidding, dealers agree in advance to purchase securities on behalf of their customer at the average yield. The procedures are designed to allow small buyers to acquire up to $5 million of an issue, but at the time the limit was $1 million.

In the case of DLJ, the firm's Pershing Division was supplying securities for a number of correspondent broker-dealers, primarily regional and small firms, the SEC said. To simplify paperwork requirements, Pershing was said to have bundled orders from different customers into $1 million bids.

In other instances, according to the SEC, Pershing acquired excess amounts of securities to fill customer orders that were submitted too late for the auction.

Discount Corp. of New York, another primary dealer that has since been dissolved, was also involved in some of the false bids, the SEC said.

SEC officials said the firms' actions were mainly an effort to get around Treasury paperwork requirements that require noncompetitive tenders to list each customer. The situation was not as serious as the fraud committed by Salomon Brothers Inc. that led to a $290 million settlement last year, they said.

Treasury market participants generally reacted with indifference to news of the charges.

"It's water under the bridge," said one head government trader at a New York-based primary dealership. "The Salomon scandal hit the market hard and these charges against DLJ and Carroll McEntee are small potatoes."

A second head trader at a New York-based primary dealership agreed that the charges will have no significant implications for the Treasury market. "My judgment is that these charges resulted from oversights on paperwork. It's embarrassing for the firms, but it won't prompt any changes in the way auctions are conducted or in trading," he said.

Participants agreed that the aftershocks from the Salomon Brothers bidding scandal are still being felt by the market and that dealers are more cautious as a result.

"A lot of people played fast and loose with the rules in the 1980s and into the 1990s, and manipulating the market was pretty widespread. But that's all changed in today's market," said one bond trader at a primary dealership. "People know the Federal Reserve is serious about bidding these days and they are very careful about how they bid."

Another primary dealership trader said, "The size of the fines are probably indicative of the seriousness of the crimes. The SEC would have suspended the firms and hit them with monstrous fines if the actions warranted it."

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