The Securities and Exchange Commission has extended its inquiry into the ways municipal market dealers win bond business by asking firms to detail their relationships with consultants.

In a letter dated Oct. 29. Julie K. Lutz, assistant director of the SEC's division of enforcement, called on underwriters to "provide certain information ... concerning employees, consultants, and agents" of their firms.

The examination of consultants appears to mark a new phase in the commission's scrutiny of the municipal bond market following investigations of municipal bond deals in New Jersey, New York City, Louisiana, and Massachusetts.

The two-page letter, for example, marks the third in a scries of written inquiries that the SEC's enforcement division has sent to underwriters. The initial letter, dated June 4, called on 70 industry firms to provide detailed records of all political contributions by political action committees and individuals since January 1990.

SEC enforcement chief William McLucas said in a telephone interview yesterday that he had no comment about the latest letter. In an interview in June, however, McLucas said that, generally speaking, "We are going to take a look at the area, and if there have been violations of the law, we will look at the facts and pursue the inquiries as appropriate."

A spokeswoman for SEC Chairman Arthur Levitt Jr. said: "We don't comment on enforcement inquiries." However, she said, when Levitt announced at a press briefing Oct. 18 that 17 Wall Street firms had agreed to ban political contributions, he called the pact a step in the right direction, but he remains concerned that money could still be "filtered" to municipal officials through other parties, such as consultants. "It is my intention to bring the principles of this agreement to all participants in the municipal bond market," Levitt said at the briefing.

In an Oct. 21 interview with The Bond Buyer, Levitt said: "I would say there is a legitimate use of consultants with the kind of technical expertise that ... the markets call for."

Levitt also said in the interview that he is concerned about firms' use of political consultants "to gain greater inroads into the underwriting of municipal bonds."

Industry executives said the additional inquiry was not altogether unexpected given the commission's recent review of the impact of political contributions on the municipal bond business.

Many market executives, for example, privately said the chairman was concentrating too heavily on campaign contributions at a time when many view abuse of consultant relationships as a major ethical problem for the industry.

"This is a process the SEC is going through to understand our business," said one market executive who asked not to be identified. "Every time they learn something, they want to find out more about the business. Sooner or later, they will set standards for what is acceptable and what isn't."

No one knows how many market players have received the letter, which asks firms to respond by Nov. 19. Several large dealers told The Bond Buyer they have received the inquiry along with most of their industry competitors.

According to the letter obtained by The Bond Buyer, firms are asked to name:

* municipal executives who have "ever held any elected or appointed public office or other position in any state, any political subdivision of any state, any agency, or any instrumentality of any state or any political subdivision thereof, or who are members of the immediate family of any such person."

* "all persons" the firms have hired, other than full-time employees, who provide advice on municipal bond deals.

* people hired by the firm to provide general or specific advice concerning political issues or concerning candidates" for political office.

* all persons hired by the firm who have received a "bonus, commission, or finder's fee or similar payment."

* all instances where the firm has been asked to hire a consultant or law firm in connection with a municipal bond issue.

* terms of employment.

The industry's use of political consultants will also be examined by the Municipal Securities Rulemaking Board, the market's self-regulatory agency, which in August proposed a ban on political contributions to state and local bond issuers, according to MSRB officials.

Christopher Taylor, executive director of the board, said he has not seen the SEC letter, but he said the board will look at the issue of political consultants "to see if there's a need for possible rulemaking."

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