NEW YORK -- In a costly and humbling conclusion to a scandal that threatened the viability of one of the brashest giants on Wall Street, Salomon Inc. agreed yesterday to pay $290 million to settle violations of securities regulations that protect the nation's trillion-dollar market for government debt.
The infractions have already led to sweeping changes within the firm, including a wholesale turnover in senior management and more subtle changes in how the government distributes its debt.
Salomon's fine was second in size only to the $650 million paid by Drexel Burnham Lambert Inc. for numerous serious violations of securities law during the 1980s. Given the scope of Salomon's transgressions, many observers said the size of the penalty was significant.
Still, Wall Street was encouraged by the terms of the settlement. Salomon's stock rose $2.875, to $33.50 a share, about where it was a year ago but up more than 50 percent from where it plunged in the middle of last summer when disaster appeared to loom.
Yesterday's agreement will spare Salomon from facing criminal charges. But its legal troubles are not over and the direct costs stemming from the scandal continue to mount.
The company had reserved $200 million to cover related costs, but announced yesterday it was taking an additional pre-tax charge of $185 million to fully cover claims.
Salomon admitted last summer that it falsified customer orders for government securities in several major auctions.
The auctions are the primary means used by the Treasury department to finance the country's vast debt, and Salomon has long played a pivotal role as the most important of the 38 "primary dealers" authorized to deal directly with the Federal Reserve.