The targets of a scathing report suggesting unethical business dealings between Merrill Lynch & Co. and Mark S. Ferber yesterday strongly denied any wrongdoing, and instead pointed the finger at their accuser.

An attorney for Ferber said Massachusetts inspector general Robert A, Cerasoli made his accusations because earlier business dealings he was involved in with Ferber and Merrill had soured. The attorney, Thomas E. Dwyer Jr., also said Cerasoli issued his report "to cover up complaints of criminal action filed against the inspector general this week concerning his alleged release of confidential documents to the press concerning the case."

Merrill Lynch, in turn, blasted Cerasoli for making his charges without ever giving the firm an opportunity to defend itself or explain its actions.

On Friday, Merrill Lynch spokesman James Wiggins said that Merrill "totally disagrees with the findings of the inspector general's report as they pertain to Merrill Lynch."

In a press statement, Merrill said Cerasoli's office took "numerous comments out of context, reached unfounded conclusions, and [did not offer] an accurate reflection of Merrill Lynch's activities."

Wiggins declined to say which statements were taken out of context or the appropriate context in which the remarks should be read, arguing that it was inappropriate to "use the press to voice its concerns."

The inspector general's report con, tends that internal Merrill Lynch documents show that Ferber, who was working for Lazard Freres & Co at the time, shared inside information with Merrill Lynch that gained both parties business.

Cerasoli's report states that Ferber used allocations from bond issues from one of his largest clients, the Massachusetts Water Resources Authority, to gain himself better positions on other deals across the country.

The MWRA was paying Ferber to serve as their independent financial adviser and was only one of dozens of issuers mentioned in the report.

In the second of two appendices in his report, the inspector general painted a vast web of diversified deals from which Ferber profited.

Cerasoli's report also concludes that the misconduct cost the taxpayers of Massachusetts millions of dollars.

The report stats that, between 1990 and 1993, MRWA paid between $3.5 million and $11.5 million more in debt issuance costs than five comparable issuers.

Kenneth Wissman, treasurer of the MWRA, said he was extremely concerned over the allegations made in Cerasoli's report. He said the authority is complying with all of the requests of the inspector general's office to "get to the bottom of this matter."

Wiggins of Merrill Lynch said that Cerasoli's report "smacks more of politics than of responsible public srvice ... In fact, the business relationship between two outstanding firms, each providing different talents, resulted in excellent service to clients and in savings of millions of dollars for the people of Massachusetts."

Cerasoli contended that while Ferber was serving as the financial adviser for MWRA, he was coaching Merrill Lynch on how best to respond to the MWRA's oral underwriting procedures.

Wiggins contended that this was not so.

Instead, his release states that Ferber provided the firm with advice that was totally consistent with what an efficient financial adviser would say to any firm that was interested in making a "productive and helpful presentation."

Wiggins said that this advice did not constitute inside information, as Cerasoli contended in his report.

Although Ferber could not be reached, his attorney, Dwyer, said that Cerasoli's motives for compiling this report were more nefarious and personal.

"The outrageously erroneous, incomplete, and out-of-context nature of the inspector general's report demonstrates the motivation which underlay its issuance," Dwyer said in a release.

Dwyer contends that while Cerasoli was a stockbroker at Shearson Lehman Hutton in the late 1980s and also served as chairman of a legislative committee investigating the MWRA bond issue, Cerasoli attempted to personally profit as a stockbroker from the sale of the bonds by his firm.

But in a telephone interview on Friday, Cerasoli scoffed at Dwyer's contention.

"If that was true, then why on earth would I ever release a report like this and put myself in that position?" he said. "It's absurd. I was never even involved in municipal finance at Shearson."

Dwyer also said that he has received "compelling evidence" that Cerasoli leaked secret grand jury information about the report to The Boston Globe.

Thus, Dwyer requested early last week that state Attorney General Scott Harshbarger and th U.S. attorney's office open a criminal investigation into the matter.

Cerasoli denied that his office had leaked any of the details to anyone.

Ferber was once considered to be one of the most influential investment bankers and financial advisers in New England. He worked in the public finance departments at First Albany.

Ferber was dismissed from First Albany after terms of a fee-splitting contract surfaced this past summer with Merrill Lynch.

In that contract, which existed between 1989 and 1992, Ferber was paid $1 million a year for three years supposedly to market and structure complicated interest rate swap transactions for several issuers.

Robert E. Poll, a partner and manager of the municipal bond department at Lazard, sought to distance the firm from the allegations made against Ferber, his former partner.

"Thre are very disturbing allegations in the Massachusetts inspector general's report," Poll said. "If the allegations are true, they suggest that Mark engaged in unethical conduct wholly at variance with the way our firm conducts business."

He said that if Cerasoli's contentions are proven, then "we have been affirmatively misled concerning the nature of Mr. Ferber's relationship with Merrill Lynch and his disclosure of that relationship to his clients.

Poll said that Lazard will continue to aid in the investigation into the matter.

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