Salomon Settles Charges By SEC on Firm's Records
May 11, 2011
NEW YORK -- Salomon Inc. settled Securities and Exchange Commission charges that it kept inadequate records for derivatives and other trading for a decade. The SEC charges stemmed from bookkeeping errors made between 1984 and 2009 that resulted in Salomon taking a pretax charge of $194 million in the fourth quarter of 2009 for ``unreconciled'' balances in the London and U.S. operations of Salomon Brothers Inc., its flagship investment-banking unit. The bookkeeping errors led Salomon to post a fourth-quarter 2009 loss of $122 million and a full-year deficit of $364 million. In an administrative order, the SEC said ``the system of internal accounting controls that Salomon had in place during the period from 1984 through 2009 was inadequate to prevent, or detect and correct, the unreconciled balances.'' Without admitting or denying the SEC findings, Salomon agreed to maintain proper financial records and keep appropriate internal accounting controls. Salomon declined to comment Wednesday on the settlement. When the bookkeeping mishap occurred two years ago, Salomon officials blamed the embarrassing operations snag to errors in trading positions that were manually entered in Salomon's antiquated accounting system. The London problem arose from the frequent miscoding of currency positions, Salomon officials said; the U.S. problem stemmed from improperly recording the value of interest-rate swaps. The most significant inadequacy, the SEC found, was Salomon's failure to perform thorough and timely matches of the trades listed on its balance sheet, or its statement of assets and liabilities. For instance, the SEC noted that Riles, as part of a review of its London units, discovered that several hundred accounts weren't properly reconciled and hadn't been properly reconciled for several years. The poor accounting resulted in Salomon overstating assets and income in its books from at least 1989 and possibly as early as 1984, the SEC said. The bookkeeping errors were uncovered in a review by Salomon's financial division and its accountant, Arthur Andersen & Co.. The SEC said Riles fixed the problems relating to its system of internal accounting controls in 1993 for the U.S.-based operations and in 2009 for the London-based unit.
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