Paul Mozer
Encyclopedia
Paul William Mozer is an American former Treasury bond trader for Salomon Brothers
who was convicted in an illegal bidding scandal.
to Robert and Patricia Mozer. He enrolled in the Berklee College of Music
in the fall of 1973. He transferred to Whitman College
, where he majored in economics, edited the school newspaper and graduated in 1977. He graduated from the Kellogg School of Management
at Northwestern University
, with a master's degree.
In 1979, Mozer joined Salomon's Chicago office. In 1983, he married Francine Lee. He was transferred to Salomon's New York Government bond desk.
When the government restricted Salomon's bid to 35% in August 1990, Mozer submitted bids for 35% in the name of S.G. Warburg and Quantum Fund (without their knowledge), for a total of 105%. However, Warburg submitted its own bid, and the government notified Warburg that it was restricting its bid. Mozer scrambled to assure Warburg that it was a "clerical error." His supervisor, John Meriwether
chewed him out for the transgression, but he was not fired.
In May 1991, Salomon, using the same methods, bought $10.6 billion of the $11.3 billion two-year note auction. A short squeeze began. Officials at the Treasury talked to officials at the U.S. Securities and Exchange Commission (SEC) about apparent Market manipulation
. John Gutfreund
met with United States Department of the Treasury
officials giving assurances. United States Department of Justice
officials met with officials from the New York Fed and E. Gerald Corrigan
. Salomon issued a press release, but this failed to placate the Government; they threatened to pull trading authority from Salomon.
On August 9, 1991, Mozer was suspended along with Thomas Murphy.
Salomon was fined $290 million, the largest fine ever levied on an investment bank at the time, weakening it and eventually leading to its acquisition by Travelers Group, now a part of Citigroup
. CEO Gutfreund left the company in August 1991; a SEC settlement resulted in a fine of $100,000 and his being barred from serving as a chief executive of a brokerage firm; Warren Buffett
became chairman and appointed Deryck Maughan
president.
On December 3, 1992, the SEC filed a complaint against Mozer for filing "false bids" On January 12, 1993, he was indicted by a federal grand jury. He was represented by Stanley Arkin. Judge Leval in Manhattan sentenced Mozer to four months in a minimum security prison and a fine of $30,000.
Salomon Brothers
Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...
who was convicted in an illegal bidding scandal.
Early life and career
Mozer was born in New York CityNew York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
to Robert and Patricia Mozer. He enrolled in the Berklee College of Music
Berklee College of Music
Berklee College of Music, located in Boston, Massachusetts, is the largest independent college of contemporary music in the world. Known primarily as a school for jazz, rock and popular music, it also offers college-level courses in a wide range of contemporary and historic styles, including hip...
in the fall of 1973. He transferred to Whitman College
Whitman College
Whitman College is a private, co-educational, non-sectarian, residential undergraduate liberal arts college located in Walla Walla, Washington. Initially founded as a seminary by a territorial legislative charter in 1859, the school became a four year degree granting institution in 1883...
, where he majored in economics, edited the school newspaper and graduated in 1977. He graduated from the Kellogg School of Management
Kellogg School of Management
The Kellogg School of Management is the business school of Northwestern University in Evanston, Illinois, downtown Chicago, Illinois and Miami, Florida. Kellogg offers full-time, part-time, and executive programs, as well as partnering programs with schools in China, India, Hong Kong, Israel,...
at Northwestern University
Northwestern University
Northwestern University is a private research university in Evanston and Chicago, Illinois, USA. Northwestern has eleven undergraduate, graduate, and professional schools offering 124 undergraduate degrees and 145 graduate and professional degrees....
, with a master's degree.
In 1979, Mozer joined Salomon's Chicago office. In 1983, he married Francine Lee. He was transferred to Salomon's New York Government bond desk.
Indictment and conviction
Mozer's strategy was arbitrage. He would short government bonds in the "when issued" market and then cover his shorts at the Government auction. In order to make more money, he needed to be a large buyer, driving up the price in the aftermarket. Mozer was publicly critical of the Government's 35% bid limit rule; "the 35% bid-limit rule became known to many on Wall Street, as the “Mozer/Basham” rule".When the government restricted Salomon's bid to 35% in August 1990, Mozer submitted bids for 35% in the name of S.G. Warburg and Quantum Fund (without their knowledge), for a total of 105%. However, Warburg submitted its own bid, and the government notified Warburg that it was restricting its bid. Mozer scrambled to assure Warburg that it was a "clerical error." His supervisor, John Meriwether
John Meriwether
John William Meriwether is an American hedge fund executive, seen as a pioneer of fixed income arbitrage.-Education:...
chewed him out for the transgression, but he was not fired.
In May 1991, Salomon, using the same methods, bought $10.6 billion of the $11.3 billion two-year note auction. A short squeeze began. Officials at the Treasury talked to officials at the U.S. Securities and Exchange Commission (SEC) about apparent Market manipulation
Market manipulation
Market manipulation describes a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency...
. John Gutfreund
John Gutfreund
John H. Gutfreund is the former CEO of Salomon Brothers Inc, an investment bank that gained notoriety in the 1980s. Gutfreund turned Salomon Brothers from a private partnership into a publicly traded corporation which started a trend in Wall Street for investment companies to go public. He became...
met with United States Department of the Treasury
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...
officials giving assurances. United States Department of Justice
United States Department of Justice
The United States Department of Justice , is the United States federal executive department responsible for the enforcement of the law and administration of justice, equivalent to the justice or interior ministries of other countries.The Department is led by the Attorney General, who is nominated...
officials met with officials from the New York Fed and E. Gerald Corrigan
E. Gerald Corrigan
Edward Gerald Corrigan is an American banker who was the 7th President of the Federal Reserve Bank of New York and Vice-Chairman of the Federal Open Market Committee...
. Salomon issued a press release, but this failed to placate the Government; they threatened to pull trading authority from Salomon.
On August 9, 1991, Mozer was suspended along with Thomas Murphy.
Salomon was fined $290 million, the largest fine ever levied on an investment bank at the time, weakening it and eventually leading to its acquisition by Travelers Group, now a part of Citigroup
Citigroup
Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...
. CEO Gutfreund left the company in August 1991; a SEC settlement resulted in a fine of $100,000 and his being barred from serving as a chief executive of a brokerage firm; Warren Buffett
Warren Buffett
Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is widely regarded as one of the most successful investors in the world. Often introduced as "legendary investor, Warren Buffett", he is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is...
became chairman and appointed Deryck Maughan
Deryck Maughan
Sir Deryck C. Maughan is a British businessman and philanthropist. He graduated from King's College London with a BA in 1969, and earned a MS from Stanford Graduate School of Business in 1978, where he was a Harkness Fellow....
president.
On December 3, 1992, the SEC filed a complaint against Mozer for filing "false bids" On January 12, 1993, he was indicted by a federal grand jury. He was represented by Stanley Arkin. Judge Leval in Manhattan sentenced Mozer to four months in a minimum security prison and a fine of $30,000.