SEC, Manhattan D.A.
Probing WR Lazard's
Ties To NY Agency
The death of WR Lazard's founder this week comes as both the Securities and Exchange Commission and the Manhattan district attorney's office continue probes encompassing various aspects of his firm's business dealings with a troubled New York State agency.
Wardell Lazard, who was found dead Wednesday in Pittsburgh, is not a target of the investigations, but a source with knowledge of the SEC's probe said that his firm, WR Lazard & Co., is being examined on several fronts.
The SEC is examining WR Lazard's ties to the New York State Job Development Authority, which is already under investigation by the Manhattan district attorney's office and the New York State inspector general's office for its relationship to WR Lazard, officials at the two agencies confirmed.
William McLucas, chief of the SEC's enforcement division, refused to comment, but a source with knowledge of the matter confirmed the agency's investigation and said it may involve other matters besides Lazard's relationship with the Job Development Authority.
The district attorney's investigation, according to law enforcement officials and lawyers involved in the case, concerns the firm's role as senior manager of authority bond issues, its role in several agency swap deals, and as a provider of brokerage services for the authority.
The Manhattan district attorney's investigation, law enforcement sources said, was sparked by a lawsuit filed against the authority by James K. Blaine, the agency's former chief financial officer and treasurer.
In the lawsuit, Blaine charges he was fired by the authority's president, Audrey Bynoe, in part because he criticized the relationship between the authority and Lazard, which he said cost the agency money.
Blaine also criticized other agency practices.
The charges also led to an ongoing New York State inspector general's office investigation into the Job Development Authority. Authority officials confirmed that the inspector general's office is investigating a number of issues, but a spokeswoman refused to be specific. In the lawsuit, Blaine said that Bynoe and authority staff members received interest-free loans from the agency, and that agency funds were used to pay Bynoe's personal parking tickets while using an authority car.
Through her attorney, Bynoe denied any wrongdoing.
As for WR Lazard, a spokesman for the district attorney's office confirmed that investigators are reviewing a December 1991 swap, in which a swap provider paid Lazard $548,000 as an "agent" on the transaction. Investigators want to know "what work was performed to warrant payment of these fees," the spokesman said.
The district attorney's investigation also encompasses other transactions between the Job Development Authority and Lazard, the spokesman said, but declined to elaborate.
According to Securities Data Co., WR Lazard has served as senior manager on four of the authority's last five negotiated bond transactions.
Robert Plotkin, WR Lazard's attorney, described the investigation by the district attorney's office as "very inactive." Plotkin said the district attorney's office subpoened the firm about six months ago, requesting information on all its dealings with the authority. He said the firm has not heard from the district attorney's office since. He said he was not aware of the SEC inquiry.
Regarding the allegations in Blaine's lawsuit, Plotkin said: "It's all innuendo and hearsay. It's like a Kennedy conspiracy theory."
When asked if the district attorney's probe included all aspects of the firm's relationship with the authority, Plotkin said: "We were asked to provide records relating to the relationship with the JDA. To the extent that the relationship with the JDA includes things beyond swaps, then [the investigation] would include everything."
The Swaps
The investigators are reviewing several derivatives transactions involving Lazard and the authority that are mentioned in Blaine's lawsuit, sources familiar with the investigation said.
The Manhattan district attorney's office confirmed yesterday that one of the transactions being investigated in a $50 million interest rate swap that the Job Development Authority entered with Sumitomo Capital Markets Corp. in December 1991. WR Lazard was paid $548,360 by Sumitomo for acting as an "agent" on the swap.
Swap professionals said yesterday that the usual payment for a $50 million, three-year maturity swap is about four to five basis points, or about $70,000.
"This is an unheard of amount," one swap market professional said yesterday.
On the same date, the authority entered an identical swap with J.P. Morgan Capital Markets. Lazard did not act as an agent on the second swap, and received no fee. The fixed rate that J.P. Morgan charged the authority was 4.40%, considerably less than the 4.85% rate charged by Sumitomo.
Swap professionals said they were also surprised by the difference in price between the two identical swaps. The difference in price on such a transaction would typically be 10 to 20 basis points.
"Are you kidding?," one swap professional said yesterday. "That's a 45 basis point spread on a three-year swap. That's crazy."
Sumitomo officials declined to comment on the transactions and the investigation. But the bank released a statement yesterday expressing sorrow over the death of Wardell Lazard. "It would be inappropriate to comment at this time," the statement said.
The Job Development Authority received bids from Merrill Lynch & Co. and Lehman Brothers for the swap that were lower than the Sumitomo bid, according to Blaine's complaint. But Blaine alleged that Bynoe, president of the authority, insisted that the authority accept the swap bid from Lazard and Sumitomo.
The authority, in a brief filed in response to Blaine's complaint, denied Blaine's description of the swap selection process.
The complaint also criticized later swap transactions. In April 1992, the authority entered a forward swap with Sumitomo. Blaine charged that Lazard again received an agent fee and Bynoe "insisted on not getting any other bids."
In January 1993, the authority sought to terminate its forward swap. Blaine charges that Bynoe insisted that the termination be done through Lazard instead of directly with Sumitomo. "There was no legitimate purpose for using Lazard as agent and receiving less proceeds for the execution of the January 1993 transaction," Blaine said in his complaint.
In August 1992, the authority entered a $35 million, seven-month swap with Banker's Trust. Lazard acted as agent and received $69,500 from Banker's Trust Co., according to the authority's confirmation record of the swap filed as an exhibit in the Blaine lawsuit.
"We have no knowledge of this investigation and therefore cannot comment," a spokeswoman at Banker's Trust said yesterday.
Again, swap professionals said the $69,500 fee was extremely high for such a transaction. "That's about 35 basis points," one professional said. "The market standard is five basis points. I've never heard of one as high as 10 points."
The Job Development Authority denied all allegations of wrongdoing in their court filing.
Body Discovered
In Pittsburgh Hotel;
Overdose Suspected
An apparent drug overdose cut short the life of Wardell R. Lazard, one of the pioneers of minority-owned municipal bond firms and the founder and managing principal of WR Lazard, Laidlaw & Mead Inc.
Lazard, 44, died Wednesday afternoon in Pittsburgh. A former Salomon Brothers executive, he was the founder of one of the first and largest minority-owned securities firms on Wall Street.
The news stunned his Wall Street colleagues, who remembered the executive fondly and praised him.
After holding an emergency board of directors meeting the late Wednesday, Lazard officials announced that Melvin L. Eubanks, vice chairman of the company's subsidiary. WR Lazard & Mead Inc., was elected acting chairman and chief executive officer of the company.
Lazard was discovered at 1:30 p.m. lying face down and naked on the bed in his room at the Vista International Hotel in downtown Pittsburgh, Sgt. Mark Ninehouser of the Pittsburgh police department said.
Lazard was found by hotel security officials after a maid who tried to enter the room to clean it found the security chain latched and was unable to summon Lazard. Lazard was pronounced dead at 1:45 p.m. by Pittsburgh paramedics who had been called to the scene.
An investigation into the cause of death is being conducted by the Allegheny County coroner's office and the Pittsburgh police department.
An autopsy was performed Thursday morning by the coroner's office. The official ruling on the cause and manner of death is pending the completion of laboratory toxicology reports, said Jim Gregris, Pittsburgh's chief deputy coroner. However, police have termed the death an apparent accidental drug overdose, Ninehouser said.
No signs of trauma were found on the body, Gregris said. Results of the toxicology reports are not expected for at least six weeks.
Lazard was in town for a business meeting with Dwight L. White, head of Lazard's Pittsburgh office, the coroner's office said. Lazard checked into his hotel room at about 9 p.m. on Tuesday, police said. Apparently, Lazard had no visitors and was not seen alive again after checking in, the police said. White and Lazard had been scheduled to have lunch on Wednesday.
White, formerly an all-pro defensive end for the Pittsburgh Steelers, joined Lazard in 1989. He previously worked as president and chief executive officer of Daniels & Bell Inc., one of the first minority-owned member firms of the New York Stock Exchange. After a stint with Prudential Securities, White joined Daniels & Bell in 1985 as a vice president in charge of public finance in seven states.
White, who was in New York yesterday, was unavailable for comment.
Lazard's room was not found in disarray and no suicide note was found, police officials said.
A white powdery substance on a black platter was next to him and a quarter-full bottle of Absolut vodka was on the desk across the room, the police said. Lazard's driver's license also was on the platter, the police said.
Police declined to identify the white powdery substance. However, laboratory tests analyzing the substance may be completed today, Ninehouser said.
Early Pioneer
Lazard was considered by many to be one of the early pioneers in an industry that had been traditionally dominated by white males.
The firm he founded in 1985 that bears his name did municipal underwriting and financial advisory work for a broad range of issuers, including the District of Columbia, the Michigan State Housing Development Authority, and the Massachusetts Bay Transportation Authority.
The firm is ranked as the fourth largest black-owned investment bank, according to Black Enterprise magazine. The magazine, in its annual listing of the nation's largest black-owned businesses, also ranks the firm as the largest black-owned money management firm.
WR Lazard & Co. is the holding company for WR Lazard, Laidlaw & Mead Inc., the brokerage firm. The company also specializes in asset management and financial advisory services.
WR Lazard broke ground as one of the first full-service minority-owned investment banks. The firm served as the first minority-owned firm to senior-manage tax-exempt offerings for several issuers, including the New York State Local Government Assistance Corporation, the New York City Municipal Water Finance Authority, and the New York State Metropolitan Transportation Authority.
For the first quarter of 1994, WR Lazard ranked as the top minority-owned underwriter of municipal issues, serving as lead manager of more than $5 billion of issues, when full credit is given to each manager, according to Securities Data Co.
Lazard was "one of the pioneers in the investment industry," said Raymond J. McClendon, vice chairman and chief operating office of Pryor, McClendon, Counts & Co., another black-owned firm.
"He swam with the sharks when it was extremely difficult to do so," McClendon said, adding that WR Lazards was "one of the first minority firms to move into asset management" and the diversified financial services area.
Alphonso Tindall Jr., chairman of the National Association of Securities Professionals, said, "He was one of the heads of an African-American institution who clearly understood the notion of diversification in the business. It's unfortunate he would have to suffer an untimely death."
Wall Street Rise
Lazard, a resident of Morristown, N.J., was born in California on Edwards Air Force base.
From 1975 to 1980, Lazard worked for the California Public Employees Retirement System, eventually rising to the post of senior investment officer responsible for fixed-income trading. While working at the system, Lazard attended law school. He graduated in 1980 from the University of the Pacific McGeorge School of Law.
Lazard joined Salomon Brothers Inc. in New York in 1980 and became a vice president in 1982. His work in Salomon's municipal bond department included structuring general obligation financings for issuers including New York, Detroit, Michigan, the District of Columbia, Philadelphia, Buffalo, N.Y., and Connecticut.
"He was a very nice person and a very able and competent banker," said Gedale B. Horowitz, a senior managing director at Salomon.
"He was a very good generalist and he produced a lot of business," commented Horowitz, who said Lazard worked for him from 1980 through 1985. "We encouraged him to go into business and lent him the money to get started."
Horowitz also is chairman for the New York State Local Government Assistance Corp. Lazard's selection as LGAC's first minority-owned senior manager was "based on competence and ability, and the work they did showed that," Horowitz said.
To grow his company, Lazard employed a strategy of making business acquisitions and wooing seasoned Wall Street professionals.
Through its purchase of the assets of Kuhns Brothers & Laidlaw Inc. in 1988, Lazard became the largest minority-owned investment banking firm in the country at that time. The Kuhns Brothers purchase also added corporate finance and research capabilities to Lazard's asset management and brokerage services.
Other acquisitions included the financial advisory firm James J. Lowery & Co. and some of the assets of Laidlaw Adams Peck & Co.
The Kuhns Brothers acquisition was financed by an approximately $2.5 million loan from the now defunct Drexel Burnham Lambert Inc.
Drexel's untimely bankruptcy in 1990 put Lazard in a precarious financial position: the firm was placed in the predicament of searching for a cash infusion in case it had to repay the Drexel loan immediately. In addition, the Kuhns Brothers purchase added too much staff - from about 18 to 70 - and too much office space to Lazard at a time of municipal market retrenchment.
According to documents filed with the Securities and Exchange Commission in March 1994, the brokerage firm, WR Lazard Laidlaw & Mead, had net capital of about $1.3 million as of Dec. 31, 1993. The firm also had $2.03 million of liabilities, primarily comprised of senior subordinated debentures.
"We will sincerely miss Wardell, as a friend, as a colleague, as a professional, and as a visionary," Eubanks said in a press release. "We extend our most sincere regrets to his family and friends. From this point forward, the firm will dedicate its future to following the mission and the vision of our friend."
Eubanks also will head Lazard's executive team, which plans to "develop and carry out policies and strategies to ensure the smooth and successful operation of the firm," according to the press release.
Eubanks also will assume the daily management of the firm's $2.7 billion asset management portfolio.
If Lazard's wife, Betty, takes the helm the firm could become the largest woman-owned investment banking firm.
Thomas R. Mead, president of WR Lazard, Laidlaw & Mead, will have direct responsibility for developing the firm's business plan, as well as new business development and marketing, Mead, who is white, left Salomon Brothers in early 1987 to become a principal of the company.
Lazard is survived by his wife; three children, a son, Marcell, and two daughters, Michelle and Miandre, all of Morristown; his parents, Mabel J. and Clarence P. Murphy, of California; two sisters, Doretta J. Murphy of New York City and Myrna L. Ervan of Lancaster, Calif.; three brothers, Roderick P. and Tyrone J. Murphy, both of Lancaster, and Dwayne K. Murphy, of Danville, Calif.; and his maternal grandmother, Nettie Jordan of Lancaster.
Funeral arrangements have not been finalized.
