Wall Street: Swaggering into Trouble

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Ironically, it was a practical joke gone awry that helped bring Salomon down. In an elaborate form of hazing, Mozer reportedly persuaded a Salomon customer last February to submit a bogus $1 billion order for 30-year Treasury bonds. The idea was to shock the novice trader who received the order. But the prank backfired: the deal went through, and the unauthorized purchase landed on Salomon's books.

Salomon rigged bids to exceed the 35% trading ceiling in at least three Treasury auctions during the past nine months. In December the firm bought 35% of an $8.5 billion, four-year-note sale and also submitted a $1 billion bid that was ostensibly for a customer but was really for its own account. The combined transactions gave Salomon a 46% share of the overall deal.

In Washington lawmakers called for tighter regulation of the $2.2 trillion government securities market. Declared Congressman Edward Markey, a Massachusetts Democrat who chairs a subcommittee that oversees Treasury bond trading: "The issue is the integrity of the most important financial marketplace in the world." Markey blamed lax regulation for permitting Salomon to display "a cavalier disregard for the rules." Democratic Senator Christopher Dodd of Connecticut demanded that Treasury Secretary Nicholas Brady conduct a "full review" of the department's auction rules. With a $300 billion federal budget deficit to finance, Washington cannot afford to scare any bond buyers away.