First Boston Corp. officials said yesterday that the Securities and Exchange Commission's announcement that it has no plans to bring inside trading charges against the firm is clear vindication that nothing illegal occurred during a New York City bond refunding in March.

For months, the firm has been working with New York City finance officials under the cloud of suspicion that it acted improperly as lead manager of a $1 billion refunding. With the conclusion of the SEC investigation, First Boston officials say the relationship between the firm and the city can return to normal.

"Throughout this investigation, First Boston cooperated fully with the SEC," Archibald Cox Jr., the firm's president and chief executive officer, said in a statement. "With the SEC having declared the matter closed, it's time to focus on how we can continue to provide value-added service to New York and its citizens."

First Boston executives said yesterday that they plan to respond to an upcoming request for proposals by city finance officials who will soon choose new senior managers for its underwriting syndicate after the new year. Michael W. Geffrard, director of the city's Office of Public Finance, said the firm would be treated like every other candidate for the lucrative position of underwriting the nation's largest capital program.

"We will take into the account both the written response to the [request for proposals] as well as the oral response," Geffrard said. "The SEC's decision wipes the slate clean, but it doesn't mean that [First Boston] will be automatically reappointed."

On Monday, First Boston said the SEC ended its investigation of insider trading in the municipal bond market by concluding that it will take "no enforcement action" against First Boston in connection with the refunding.

The SEC made the announcement in a letter dated Saturday to Marvin Schwartz, a partner with Sullivan & Cromwell in New York who represented First Boston in the matter, and James M. Ringer, a partner at Rogers & Wells, which acted as the firm's underwriter's counsel during the $1 billion city refunding.

The letter, signed by SEC Associate Director Harry J. Weiss says that "the investigation has been terminated and that, at this time, no enforcement action has been recommended to the commission."

When asked about the SEC's letter yesterday, Weiss said he had no comment. Generally speaking, however, he said it is not infrequent that the energy sends out the type of letter, dubbed a No. 5310 letter, that First Boston received.

"It's not every week" that the agency sends them out, he said. "But when an investigation has been concluded and someone who has been involved in the investigation makes a request, the division would be willing to provide it" Weiss said.

"It doesn't prevent the staff from reopening an investigation or exonerating [anyone], but it says that as of the time the letter was provided, the investigation is concluded without" any recommendations for enforcement action, he said.

First Boston officials yesterday said the letter is vindication that the company, which since the spring of 1990 held the coveted position as one of five senior managers in New York City's bond syndicate, did not act improperly during the bond deal.

"This is all you ever get," said one source, regarding the SEC letter to First Boston. "You either hear nothing from the SEC or in one case in 20 you get a letter -- maybe one case in 50." At the same time, he said, it is not something for which lawyers routinely ask the SEC.

At issue were the events surrounding First Boston's purchase of $13 million of taxable city general obligation bonds two weeks before the March refunding effort. Some city officials said the firm could have profited from the purchase of these securities because documents later showed that the bonds were placed in an account marked "for the Street." Securities in that account reflect possibly higher day-to-day market prices.

Under the insider trading scenario, the firm could have profited from buying these securities at a low price, placing them into an unnamed account, and the reselling them back to the city at a higher price. First Boston has maintained the securities were inadvertently labeled and said it did not intend to profit from the move.

The SEC's short-lived investigation into First Boston comes as the agency is beefing up its enforcement activity in the municipal bond arena. The SEC's limited presence in the tax-exempt arena has been a sore spot for Securities and Exchange Commissioner Richard Roberts, who has pressed for increased scrutiny since joining the commission two years ago. He warned in a recent speech that the enforcement division is focusing more on municipals and that firms should "tailor their behavior accordingly."

The commission brought its first insider trading case in municipals on June 23 against N. Donald Morse 2d, former secretary and treasurer of the Kentucky Infrastructure Authority. Morse was charged with secretly buying authority bonds and selling them back to the agency after recommending that the ones he purchased be called.

At the time, the SEC announced a settlement with Morse, under which Morse agreed to "disgorge" profits from the alleged insider trading scheme, roughly $6,462.50, and was barred from future violations of the federal antifraud statutes.

The agency also brought action in August against former Merrill Lynch analyst Edward l. Scherer, who was charged with "scalping" bonds backed by Executive Life Insurance Co. guaranteed investment contracts.

Scalping, which is similar to insider trading, is the practice of secretly investing in a security, recommending it to a customer, and then selling it. The SEC says Scherer "misappropriated" proprietary information that was intended to to benefit the firm and its customers. The agency is demanding that Scherer disgorge profits from the transactions and pay a civil penalty.

In a speech last month before the National Association of Bond Lawyers, former SEC counsel Edward Pittman said that in the Kentucky case, the official breached his duty to the issuer, not to the bondholder. Traditionally, insider trading charges stem from a breach of fiduciary duty to shareholders in a corporation, Mr. Pittman said.

"Well, the SEC can't use that theory here because most courts have said that the issuer does not owe a fiduciary duty to the bondholders," he said. "So this looks like the avenue the SEC will use in the future."

He suggested that bond lawyers talk to their clients about setting up specific practices for handling information about pending offerings.

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