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Mon, Nov 05, 2001 - Page 21 News List

Suspect bond trading alerts US officials

INSIDER TRADING The treasury department is looking into a series of events that occured Wednesday to decide if a leak regarding 30-year bonds broke federal laws

BLOOMBERG , WASHINGTON

The US Department of the Treasury is promising a quick decision on whether to refer suspicious trading in the 30-year bond Wednesday morning to government lawyers, after an investment consultant admitted telling clients the security was to be eliminated.

Pete Davis said he provided clients with details of the decision based on a press briefing he attended at 9am Wednesday, before public release of the news sparked the biggest rally in 14 years.

The price on the benchmark Treasury bond rose from 102 1/2 at 9:30am, when the meeting with the press ended, to 104 at 10am. By contrast, between 9am. and 9:30am, the bond traded within a range of 1/8 point.

"My office is looking into it," said David Aufhauser, Treasury's general counsel. "I will confirm that we've been made aware of assertions of suspected trading activity."

The Treasury "will make referrals to appropriate authorities at the conclusion of the investigation," Aufhauser said. He added that a decision would come "almost immediately."

Those authorities may include the Securities and Exchange Commission and the US Attorney's offices in New York and Washington, he said.

"There is a potential insider trading issue here," said Karl Groskaufmanis, a partner at the Fried, Frank, Harris, Shriver & Jacobson law firm in Washington who has been involved in insider trading investigations.

"If there's been illegal insider trading, the SEC would have the capacity to prosecute," Groskaufmanis said. "This would be unusual, but not completely unprecedented. There have been isolated instances in which the SEC has initiated insider trading cases involving either government, municipal or corporate debt securities."

SEC Chairman Harvey Pitt was a partner at Fried, Frank before assuming the agency's helm this year.

Press conference

Davis, a former congressional aide who regularly attends Treasury press conferences, was in a meeting of reporters who were advised of the decision to eliminate the bond by Undersecretary of Treasury for Domestic Finance Peter Fisher, on condition they not release the information until 10am.

Davis said he disclosed what he learned to representatives of Stone & McCarthy Research Associates and Capra Asset Management.

James Capra, president of Capra Asset Management, is chairman of the Bond Market Advisory committee.

"I thought I was dealing with people who were writing analytical pieces who would honor the embargo for release time," Davis, president of Davis Capital Investment Ideas, said in an interview.

Ward McCarthy, managing partner of the firm that bears his name, said he and his staff honored the embargo. "We were informed of these details and we abided by Pete Davis' request to hold onto the information until after the embargo and been lifted and that's what we did," McCarthy said in a telephone interview.

Capra declined comment on his role in the release, although he pointed out that the largest pre-announcement move in price was just 9/32, between 9:55am and 10am. "As a bond practitioner and analyst, that's not much," he said.

The premature release of the information raises questions about the Treasury's practice, McCarthy and others said.

"The way the government disseminates information should be made state of the art, and in my mind that means having a specific release date, a release time and to put it out over the Internet so the general public can access this information all at the same time," he said.

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