A plan by the Louisiana State Bond Commission to expose secret side deals between municipal bond dealers will not eliminate all joint accounts between underwriters, a commission official said yesterday.

Rae Logan, the commission's executive director, said the board does not want to discourage small firms or those owned by women or minorities from playing a role in state bond deals.

Smaller bond firms, minority firms, and women-owned firms often enter into fee-splitting arrangements with larger firms. Many of these arrangements are encouraged by state and local governments under affirmative action guidelines.

A total ban on all joint proposals and fee-splitting deals could prevent these firms from playing a role in state financings.

Logan said a new underwriting rule currently in the draft stage will force more disclosure from underwriters of bond transactions that fall under the commission's jurisdiction.

By forcing underwriters to disclose more information, the commission could then block side arrangements it feels are inappropriate.

The commission's reforms were prompted by a fee-splitting deal in which two large municipal bond firms gave up half their profits to a little-known Louisiana-based underwriter. The deal is the target of an investigation by the U.S. Attorney's office in Baton Rouge.

State officials have said that First Commonwealth Securities Corp., a New Orleans-based minority-owned firm, received $125,694 from Lazard Freres & Co. and $108,289 from First Boston Co. after a recent $600 million state general obligation bond issue. Despite the generous payoff, state officials said First Commonwealth apparently played little role in selling securities during the transaction.

In a recent news conference, Norbert Simmons, president of First Commonwealth, said he "scrupulously followed all the requirements of Louisiana's Minority and Women's Business Enterprise Act and rules of the Louisiana Bond Commission." Simmons also said that the fee-splitting arrangements met these requirements.

State Treasurer Mary Landrieu, who called on the commission to start work on the rule, has criticized the fee-splitting agreements as inappropriate. In a July 19 Bond Buyer article she said, "There was a very substantial transfer of funds to First Commonwealth that is unexplained. We know that First Commonwealth didn't sell any bonds - so the question is why in the world would two firms give up half of their profits to another firm that had no visible role in the deal."

A First Boston spokeswoman would not comment on the issue. A Lazard Freres spokeswoman could not be reached for comment.

A Lazard Freres executive has said that an unnamed state official suggested the profit-sharing arrangement.

In a telephone interview, Logan said, "We don't want to discourage women-owned or minority-owned firms and smaller firms from entering into joint proposals with other underwriting firms. We just prefer that these agreements be up front, so the bond commission knows about them."

Logan said the new rule, being drafted by the bond commission's staff, will affect all deals the commission has jurisdiction over. The commission issues all state and state agency debt and has oversight responsibility for local debt issuance.

The rule, when it becomes official, will likely force full disclosure of side deals between underwriters prior to those agreements being made, Logan said. On deals the commission has no direct authority over, the proposed rule will likely require disclosure of any agreements between underwriters.

At the moment, the state's financial adviser, Government Finance Associates Inc., is also working on policies and procedures that address underwritings conducted by the commission, including allocation of bonds, follow-up reporting, and fees and expenses.

The procedures will help the commission identify possible conflicts of interest and other inappropriate side arrangements between underwriters, said a source with knowledge of the rules.

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