ATLANTA - The Securities and Exchange Commission has begun an investigation into a $604 million Louisiana GO issue involving a controversial fee-splitting arrangement, according to a recent letter the SEC sent to the state's bond commission.

In a related development, the Louisiana State Securities Department has launched its own inquiry into the matter, the department's deputy director said Friday.

The two new probes of the Louisiana financing, which was sold in February, follow separate investigations of the deal underway since early this summer by the U.S. Attorney's office in Baton Rouge, the Louisiana State Bond Commission, and Louisiana's Attorney General.

All five inquiries are focused on a joint-account arrangement between three managers in the bond issue. In that arrangement, two senior managers, Lazard Freres & Co. and the First Boston Corp., shared half of their gross commission on the sale with co-manager First Commonwealth Securities, a little-known New Orleans-based minority-owned firm. State officials have said First Commonwealth apparently played a negligible role in selling securities during the transaction.

Officials at each firm have denied any wrongdoing, insisting they followed all applicable state and federal laws, and Bond Commission rules.

The SEC's Aug. 11 letter, sent to the state Bond Commission, describes a request for documents on the GO bond issue "in connection with an ongoing informal investigation by the Division of Enforcement into potential violations of federal securities laws."

Signed by Barbara L. Gunn, SEC staff attorney, the letter requests "copies of documents obtained by the Bond Commission in its investigation of the underwriting...and the fee-splitting arrangements between First Commonwealth Securities Corp. and Lazard Freres & Co., First Boston Corporation and any other underwriter in connection with the offering."

"We anticipate that these documents include, among other things, questionnaire responses from underwriters participating in the offering, correspondence to and from the underwriters concerning the fee splitting arrangement, and summaries and analyses of the bond sales," the letter says.

The letter also requests "copies of video or audio tapes, transcripts, minutes, or other documents or records reflecting the Bond Commission meetings or subcommitte meetings at which the selection of underwriters...was discussed."

The SEC also said in the letter that documents obtained from the Bond Commission "may be transferred to criminal law enforcement authorities. "

A spokesman for the SEC said last Friday that the commission, in accordance with its privacy rules, would neither confirm nor deny that there is an ongoing investigation.

However, a knowledgeable government source said that under certain circumstances, nondisclosure of a fee-splitting arrangement could be a violation of the anti-fraud disclosure provisions contained in the federal Securities Act of 1933 and the Securities Exchange Act of 1934.

"The big question is whether the information is material: Would a reasonable investor have found that information important in making a decision on whether to buy or sell the security in question?" the source said. "If such information has not been disclosed - and it would not necessarily have to directly affect the pricing or yield [at issuance] - there may have been a violation."

The source said, however, that applying the anti-fraud statutes "could be an awkward tool, given their generality."

Rae Logan, director of the Bond Commission, said that she informed commission members of the SEC's letter last Monday.

"The commission is cooperating fully with the SEC on this matter," Logan said.

Harry Stansbury, deputy commissioner of the Louisiana State Securities Department, said Friday that the department's investigation is in a "preliminary stage."

"So far, we have been gathering information from broker-dealers in the state to determine what the situation was with regard to the the joint-account arrangement between firms involved in the transaction," Stansbury said.

Stansbury added that the department would examine the transaction to see "whether state securities regulations and Bond Commission rules were followed."

"The state's securities laws track federal regulations, and we will be paying special attention to whether investors were given a full disclosure of the facts of the offering," he added.

Stansbury said that the department's investigation could lead to a number of further actions if wrong-doing is found, including revocation of the securities license of the offending firm or firms. If criminal wrongdoing is found, he said, the matter would be referred to the appropriate district attorney.

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