In the Matter of John H. Gutfreund, et al.

It was discovered by three senior officers of Saloman Brothers, Inc. (Saloman) – Gutfreund, Strauss and Meriwether (Defendants) that the head of the firm’s Government Trading Desk, Mozer, had submitted a false bid in a U.S. Treasury auction of $3.15 billion, which Feuerstein (chief legal officer) informed them established a criminal act. In early 1991, Mozer offered two false bids in the names of two customers, Mercury Asset Management (Mercury) and Quantum Fund, without them being aware of it and overriding Salomon’s regular procedures to keep his plan hidden. One of Mercury’s affiliates, S.G. Warburg, was also a participant in the auction and was notified (along with Mozer) via letter by the Treasury Department that it would treat Mercury and S.G. Warburg as one entity for auction purposes. Upon getting the letter in April 1991, Mozer told Mercury that the bid in Mercury’s name was a clerk’s mistake and would be corrected. The same day, Meriwether, Salomon’s Vice Chairman and Mozer’s supervisor was notified by Mozer ,of the letter and of his actions involving Mercury.Salomon’s president, Strauss, was made cognizant of the situation by Meriwether, who was surprised by Mozer’s behavior and informed by Mozer that he had not done anything similar to this before or since. The following week, Strauss, Meriwether and Feuerstein met with Salomon’s CEO and Chairman, Gutfreund, where Feuerstein determined that Mozer’s behavior was criminal and recommended reporting it to the government. It was determined that the Federal Reserve Bank of New York would was to be contacted regarding the matter, however, the four officers were vague when it came to how the report would be made. Due to each officer feeling that it was a different officer’s obligation to do so, at no point during this time was there ever a discussion about investigating Mozer’s actions, regarding discipline him or limiting his activities. During that timeframe, two additional unauthorized bids were submitted in the auctions of the U.S. Treasury by Mozer. Also of note, even though Feuerstein repeatedly asked for a disclosure to be made to the government regarding Mozers employment being terminated in late 1991 due to an internal investigation was conducted by an external law firm revealing his wrongdoing in multiple auctions dating back to December of 1990. The aforementioned information and the understanding that the officers were cognizant of the false February bid as early as April, were disclosed in press releases in August and later that month, all four officers resigned their positions. Then failure to supervise administrative proceedings were brought against Gutfreund, Strauss, and Meriwether by the SEC.