BOSTON - The Securities and Exchange Commission has taken a major step toward filing civil complaints against former financial adviser and investment banker Mark S. Ferber, Merrill Lynch & Co., and Lazard Freres & Co. for violations involving municipal bond sales, according to several sources.
A source who spoke on the condition of anonymity said that the moves by the SEC would not be a surprise and said other agencies investigating Ferber have been expecting the SEC to act.
Although the SEC would neither confirm nor deny the existence of an investigation, several high-placed sources in Boston and Washington said the SEC charges could be filed as early as November.
Before the SEC registers a complaint, it goes through the so-called Wells process, named for a former head of the SEC. Under the Wells process, a party is informed that the commission may take an action against it and receives 30 days in which to respond to the charges by sending what industry insiders call a "Wells letter." Sources have said that Ferber, Merrill Lynch, and Lazard Freres have been contacted by the SEC.
The commission then reviews the response and decides whether or not to proceed with the charges. The SEC does not have the power to indict, but it can revoke a license, fine a party, or force other reparations to be made.
The SEC investigation is just one of several under way. The Internal Revenue Service, the U.S. Postal Service, response and decides whether or not to proceed with the charges. The SEC does not have the power to indict, but it can revoke a license, fine a party, or force other reparations to be made.
The SEC investigation is just one of several under way. The Internal Revenue Service, the U.S. Postal Service, and the U.S. attorney's office in Boston are also conducting investigations into Ferber's and the firms' activities, according to sources in Boston.
The U.S. attorney's office is presenting its case now before a grand jury in Boston. The grand jury, which meets every Tuesday, will decide whether or not criminal or civil charges should be levied against any party in the investigation.
Several sources said that although the U.S. attorney's investigation is moving forward, it would be "at least winter," before any indictments would come.
Assistant U.S. attorney Brian O'Connor had no comment on the investigation.
Merrill Lynch spokesman James Wiggins said, "It is our policy not to comment on matters that are the subject of any ongoing investigation. We continue to cooperate fully with the SEC in its review of this matter.
A Lazard spokeswoman had no comment on the SEC's action. Ferber's attorneys also had no comment.
Ferber has been in the spotlight since early last year when an investigation by the Massachusetts inspector general's office showed he had an undisclosed contract with Merrill Lynch.
During the time of the contract, from 1989 through 1992, Ferber was one of the most successful financial advisers and bankers in New England. Among his clients were the Massachusetts Water Resources Authority; the District of Columbia; the U.S. Postal Service; Wisconsin; the Massachusetts Industrial Finance Agency; and the Massachusetts Port Authority.
In the late 1980s and early 1990s, Ferber was one of the rising stars in the municipal bond industry. In late 1992, he left his position as a partner at Lazard Freres and became co-chairman and part-owner of First Albany Co.
Ferber was fired by First Albany in August 1993 after the contract with Merrill Lynch was disclosed.
The contract, which paid Ferber $2.8 million over a three-year period, provided that Ferber's firm, Lazard Freres & Co., and Merrill Lynch work together and split fees on complicated interest rate swap transactions.
In June 1990, six months after entering into the arrangement, the two parties amended the contract, with Merrill Lynch agreeing to pay an additional $800,000 per year as a retainer for Ferber's services.
The retainer was increased to $1 million a year for 1991 and 1992.
Massachusetts inspector general Robert A. Cerasoli said the contract placed Ferber's fiduciary responsibility to his advisory clients in jeopardy. Ferber denied that the contract had anything to do with the MWRA, but the inspector general said that internal Merrill Lynch documents included the proceeds from two MWRA swaps in deciding on Ferber's worth to the firm.
Cerasoli's report also alleged that, for his fee, Ferber was influencing some of his other financial advisory clients to include Merrill Lynch in syndicates and was helping coach Merrill on how to answer questions during syndicate selection presentations.
Ferber and his attorneys have repeatedly denied that there was anything wrong with the agreement between the two firms.
Officials at Goldman, Sachs & Co., although mentioned in the inspector general's report, said the SEC has not contacted them about responding in a Wells Letter.
In the report, Cerasoli, said that Ferber had worked to ensure that Merrill Lynch would receive 50% of Goldman Sachs' order designations from an $800 million MWRA bond sale in 1990.
Cerasoli said the reference to Goldman was significant because in September 1989 a Merrill Lynch managing director wrote in a subpoenaed record of computer electronic mail that Ferber "made the point that [a key Goldman official involved with hospital financing in New England] and Goldman have delivered deals and business to [the MWRA financial adviser] and that we have done nothing for him." It is widely believed that the Merrill employee is charge of the firm's New England business.
Cerasoli said the Merrill executive also said Ferber works "to place a positive spin for Merrill Lynch's performance at ever turn," and that if Merrill did not reciprocate with more business, "especially outside of New England ... he will hurt us."
A source at Goldman said the Merrill executive's comment was not a surprise, because Ferber had been trying to involve himself with Goldman's many hospital financings in New England for "quite a while".
