UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7480 / December 3, 1997 SECURITIES EXCHANGE ACT OF 1934 Release No. 39388 / December 3, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9495 : ORDER INSTITUTING PUBLIC ADMINIS- In the Matter of : TRATIVE PROCEEDINGS PURSUANT TO : SECTION 8A OF THE SECURITIES ACT OF LAZARD FRERES & CO. LLC, : 1933 AND SECTIONS 15B(c)(2) AND 21C Respondent. : OF THE SECURITIES EXCHANGE ACT OF : 1934, MAKING FINDINGS AND IMPOSING : REMEDIAL SANCTIONS : I. The Commission deems it appropriate and in the public interest to institute public administrative proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") [15 U.S.C.  77h-1] and Sections 15B(c)(2) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C.  78o-4(c)(2) and 78u-3] against Lazard Freres & Co. LLC ("Lazard Freres" or "Respondent"). In anticipation of the institution of these proceedings, Lazard Freres has submitted an Offer of Settlement ("Offer") to the Commission. Solely for the purpose of these proceedings, and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and prior to a hearing pursuant to the Commission's Rules of Practice, Lazard Freres, without admitting or denying the findings contained herein, except as to the jurisdiction of the Commission over Respondent and over the subject matter of these proceedings, which is admitted, by its Offer, consents to the issuance of this Order Instituting Public Administrative Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15B(c)(2) and 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (the "Order") and to the entry of the findings and the imposition of the remedial sanctions set forth below. The Commission has determined that it is appropriate and in the public interest to accept the Offer and is issuing this Order. II. FACTS The Commission finds<(1)> that: A. Respondent Lazard Freres & Co. LLC. Lazard Freres is a New York limited liability company with its principal place of business in New York, New York. It is the successor to Lazard Freres & Co., a New York limited partnership with its principal place of business in New York, New York. At all relevant times, both Lazard Freres and its predecessor were a broker- dealer and municipal securities dealer, and were registered with the Commission pursuant to Sections 15(b) and 15B(a)(2) of the Exchange Act. B. Relevant Entities 1. Fulton County, Georgia. The most populous county in the State of Georgia, Fulton County's largest city and county seat is Atlanta. Fulton County's governing body is the Board of Commissioners, which, at all times relevant, consisted of seven members, elected to four-year terms. Four members were elected from territorial districts and three, including the Chairman, were elected from the County at-large. At all times relevant, the Fulton County Commission was empowered to issue bonds and to select underwriters in connection with such bond issuances. 2. Fulton-DeKalb Hospital Authority. The Fulton-DeKalb Hospital Authority ("FDHA") was at all times relevant a public body created pursuant to Georgia law and resolutions adopted by Fulton and DeKalb Counties, Georgia. The FDHA was responsible for providing public health facilities, including the Grady Memorial Hospital in Atlanta. At all times relevant, the FDHA was also authorized to issue revenue anticipation cer- tificates for the purpose of carrying out its duties, to issue such certificates to refund or refinance indebtedness, and to select underwriters for the foregoing. At all times relevant, the FDHA was managed by its Board of Trustees, which was composed of ten members: Seven were residents of Fulton County and were appointed by the Fulton County Board of Commissioners, and three were residents of DeKalb County and were appointed by the DeKalb County Board of Commissioners. 3. Duval County, Florida, School Board. A public body existing under the laws of the State of Florida, the Duval County School Board ("DCSB") was at all times relevant the governing body of the Duval <(1)> The findings herein are made pursuant to Respondent's Offer solely for these proceedings and are not binding on any other person or entity in these or any other proceedings. ======END OF PAGE 2====== County School District, which included the public schools of the City of Jacksonville. A participant in the "consolidated government" structure in place between the City of Jacksonville and Duval County, the DCSB was empowered to issue bonds, and to select underwriters and other profes- sionals in connection with such bond issuances. The DCSB was composed of seven elected members. C. Summary This matter involves an undisclosed payment to a financial advisor and other improper practices to obtain municipal securities underwriting business. A former partner of Lazard Freres who was an investment banker in its Municipal Finance Department (the "Former Partner") and a former Vice-President resident in Florida who was also an investment banker in Respondent's Municipal Finance Department (the "Former Vice-President"), arranged for an outside consultant used by the Former Partner and Former Vice-President in connection with their efforts to obtain municipal securities business for Lazard Freres (the "Outside Consultant"), to make a $41,936 payment to a former Vice-President of a co- financial advisor to Fulton County and the FDHA (the "Financial Advisor"). In addition, the Former Partner and Former Vice-President used and compensated the Outside Consultant on an undisclosed basis to assist in their efforts to secure a role for Lazard Freres in a 1992 municipal securities offering by the DCSB, in violation of certain representations contained in a contract with the DCSB. As a result of this misconduct of the Former Partner and Former Vice-President, Lazard Freres is responsible for defrauding the issuers in three offerings of municipal securities. Furthermore, the Former Partner also used third parties to act as conduits for political contributions in certain jurisdictions, under cover of false and misleading invoices for consulting and other services which were submitted to Lazard Freres in order to obtain funds from Lazard Freres to reimburse such third parties, thereby causing Lazard Freres to violate books and records provisions and the Municipal Securities Rulemaking Board's ("MSRB") fair dealing rule.<(2)> D. Payment to Financial Advisor <(2)> The misconduct described herein for which Lazard Freres is responsible was limited to the Former Partner and Former Vice- President who worked in Lazard Freres' Municipal Finance Department. Moreover, the Former Partner and Former Vice- President caused numerous false and misleading invoices requesting payment for municipal legal, consulting and other services to be submitted to Lazard Freres for payment, in order to facilitate their activities as described in this Order. Notwithstanding the above, Lazard Freres is responsible for the improper conduct of the Former Partner and Former Vice-President by virtue of their prior positions with Respondent. At the end of 1995, Lazard Freres closed its Municipal Finance and Municipal Bond Departments and is no longer engaged in the municipal underwriting business. ======END OF PAGE 3====== On June 3, 1992, the Fulton County Commission voted to select a two-firm team to provide financial advisory services in connection with, among other things, future municipal underwritings by Fulton County. The Financial Advisor was the senior investment banker for one of the firms selected and was resident in Atlanta for his firm. The Financial Advisor was the person at his firm responsible for the Fulton County financial advisory assignment. Among the responsibilities of Fulton County's financial advisors was assistance with underwriter selection for future Fulton County bond issues. By July 16, 1992, the Former Partner, the Former Vice President, the Outside Consultant and the Financial Advisor agreed that, in exchange for the promise of compensation, the Financial Advisor would assist the Former Partner and Former Vice-President in their efforts to obtain for Lazard Freres the senior managing underwriter position on a large upcoming bond issue of Fulton County, i.e., the $163,375,000 Fulton County, Georgia, Water and Sewerage Revenue Bonds, Refunding Series 1992 (dated October 1992) ("Fulton Water & Sewer Refunding"). Thereafter, the Financial Advisor assisted the Former Partner and Former Vice-President in their ultimately successful effort to obtain that position for Lazard Freres by, among other things, manipulating the results of the financial advisors' ranking of the 32 underwriting proposals received to ensure that Lazard Freres received the top score, and joining in the recommendation submitted to the Fulton County Commission that Lazard Freres be named senior managing underwriter. In December 1992, following closing of the Fulton Water & Sewer Refunding, the Former Partner arranged for the Outside Consultant to submit a false and misleading invoice to Lazard Freres requesting payment of $83,872 for "Governmental Consulting-Business Development/Marketing Services" and caused Lazard Freres to issue an $83,872 check to the Outside Consultant in payment of the invoice. The Outside Consultant then paid the Financial Advisor $41,936, exactly half of this amount. The $41,936 payment to the Financial Advisor was not disclosed to the issuer or to investors in the Fulton Water & Sewer Refunding. In conduct that began shortly before he received the $41,936 from the Outside Consultant and that continued thereafter, the Financial Advisor also assisted the Former Partner and Former Vice-President in their efforts to obtain municipal underwriting business from a neighboring issuer, the FDHA, for which the Financial Advisor also came to serve as co- financial advisor by virtue of his position as financial advisor to Fulton County. The bond issue was the $336 million Fulton-DeKalb Hospital Authority (Georgia) Revenue Refunding Certificates, Series 1993 (dated May 1993) ("Grady Hospital Refunding"). The Financial Advisor assisted the Former Partner and Former Vice-President in their efforts to obtain a role for Lazard Freres in the Grady Hospital Refunding by, among other things, providing the Former Partner and Former Vice-President with a copy of a competitor's unsolicited refunding proposal, and joining in the recommendation to the FDHA that Lazard Freres be named as one of three co- senior managing underwriters. The Financial Advisor took these actions, again, without disclosing to the issuer or to investors in the Grady ======END OF PAGE 4====== Hospital Refunding the financial arrangement he reached with the Former Partner and Former Vice-President or the $41,936 payment he received from the Outside Consultant. Nor was any such disclosure made by the Former Partner and Former Vice-President. E. Undisclosed Use of Consultant and Improper Contacts In connection with the underwriter selection process for the $184,500,000 School District of Duval County, Florida, General Obligation Refunding Bonds, Series 1992 (dated April 1992) ("Duval School Refunding") the terms of the DCSB's Request for Proposals ("RFP") for underwriting services prohibited prospective underwriters from using and paying non- full-time employees as consultants to assist in obtaining business for any such underwriter on the Duval School Refunding. The terms of the Investment Banking Services Agreement ultimately entered into by DCSB and the underwriters expressly empowered the DCSB to recover the amount of any such consultant payments from the underwriters, either as part of the purchase price for the bonds or otherwise.<(3)> In addition, the RFP limited contacts by prospective underwriters and their agents to two individuals: the financial advisor for the transaction and a DCSB staff member. Notwithstanding these prohibitions, the Former Partner and Former Vice-President arranged to use the Outside Consultant, who was not a Lazard Freres employee, on an undisclosed basis to assist in their efforts to obtain the senior managing underwriter position on the Duval School Refunding for Lazard Freres and promised the Outside Consultant compen- sation for doing so. Pursuant to such arrangement, the Outside Consultant assisted the Former Partner's and Former Vice-President's efforts to obtain the senior managing underwriter position on the Duval School Refunding for Lazard Freres by, among other things, making prohibited pre-selection contacts with an elected member of the DCSB. Following Lazard Freres' selection as senior managing underwriter for the Duval School Refunding, the Former Partner was responsible for the making of a materially false and misleading representation in the Investment Banking Services Agreement he caused to be executed with the issuer on behalf of Lazard Freres by (1) warranting that Lazard Freres "has not employed or retained any company or person, other than a bona fide employee working solely for Lazard Freres, to solicit or secure this Agreement, and that it has not paid or agreed to pay any person, company, corporation, individual or firm, other than a bona fide employee working solely for Lazard Freres any fee, commission, per- <(3)> Both the RFP and later, the "Investment Banking Services Agreement" for the Duval School Refunding provided that, in the event any underwriter paid any compensation to a non-full- time employee engaged to assist an underwriter in obtaining underwriting business in connection with the Duval School Refunding, the DCSB "shall have the right to terminate this agreement without liability and, at its discretion, to deduct from the contract price, or otherwise recover, the full amount" of any such compensation. ======END OF PAGE 5====== centage, gift or any other consideration, contingent upon or resulting from the award or making of this Agreement," and (2) failing to disclose the involvement of or compensation to be paid to the Outside Consultant. F. Use of Consultant and Other Payments for Campaign Contributions In September and October 1992 and February 1993, the Former Partner arranged for the reimbursement of at least $62,500 in political contributions to gubernatorial campaigns in two jurisdictions. In particu- lar, the Former Partner arranged for third parties -- including certain Florida lawyers and consulting firms -- to make the political contributions. The Former Partner then had the third parties submit false and misleading invoices to Lazard Freres requesting payment for purportedly legitimate municipal-related legal, consulting or other services rendered to Lazard Freres in order to obtain funds from Lazard Freres to reimburse the third parties for the political contributions. The Former Partner then saw to it that these invoices were paid by Lazard Freres. All of the foregoing contributions were made in furtherance of the Former Partner's municipal securities underwriting business development efforts. III. OPINION A. Violations of the Antifraud Provisions By virtue of the above-described conduct of the Former Partner and the Former Vice-President, Lazard Freres is responsible for violations of (1) Section 10(b) of the Exchange Act and Rule 10b-5 thereun- der with respect to the sales of bonds from the issuers to Lazard Freres on the three refunding issues, and (2) Sections 17(a)(2) and 17(a)(3) of the Securities Act with respect to the sales of bonds to investors in the three refunding issues. 1. Fraud on the Issuers The failure to disclose the arrangement with and payment to the Financial Advisor constituted and operated as a scheme to defraud the issuers on the Fulton Water & Sewer and Grady Hospital Refundings. See First Fidelity Securities Group, Exchange Act Rel. No. 36694, 61 S.E.C. Docket 68 (Jan. 9, 1996) (underwriter defrauded issuers by paying undisclosed kickbacks to financial advisor for underwriting business). Similarly, the failure to disclose the use of and the payment of a success fee to the Outside Consultant constituted and operated as a scheme to defraud the DCSB on the Duval School Refunding. Moreover, as an underwriter of Fulton County, FDHA and DCSB securities, Lazard Freres was a purchaser of securities from those issuers. The Former Partner and Former Vice-President knew and understood that Lazard Freres, as a broker-dealer, had an obligation to deal fairly with ======END OF PAGE 6====== the issuers. See MSRB rule G-17;<(4)> see also Charles Hughes & Co. v. SEC, 139 F.2d 434, 437 (2d Cir. 1943), cert. denied, 321 U.S. 786 (1944). The undisclosed arrangement with and payment to the Financial Advisor breached that duty. See, e.g., SEC v. Feminella, 947 F. Supp. 722, 732 (S.D.N.Y 1996) (kickback paid to agent of broker-dealer's customer should have been received by the customer, and not the agent). Fulton County and the FDHA were entitled to impartial advice from the Financial Advisor and in evaluating that advice were entitled "to judge for them- selves what significance to attribute" to the payment received by the Financial Advisor. See Wilson v. Great American Industries, Inc., 855 F.2d 987, 994 (2d Cir. 1988). This is "not because such [arrangements] are always corrupt but because they are always corrupting." Mosser v. Darrow, 341 U.S. 267, 271 (1951).<(5)> With respect to the DCSB and the Duval School Refunding, the Former Partner caused a false and misleading representation to be made to the issuer concerning the use and compensation of the Outside Consultant. That misrep-resentation went to the terms of the sale of the bonds, and was therefore material to the issuer. 2. Nondisclosure to Investors As underwriter on the three transactions, Lazard Freres delivered the Official Statements for the offerings to investors, and had a duty to review the key representations in those Official Statements.<(6)> The Official Statements for the Fulton Water and <(4)> MSRB rule G-17 provides: In the conduct of its municipal securities business, each broker, dealer, and municipal securities dealer shall deal fairly with all persons and shall not engage in any deceptive, dishonest, or unfair practice. <(5)> Cf. United States v. Waymer, 55 F.3d 564, 572 (11th Cir. 1995), cert. denied, 116 S. Ct. 1350 (1996) (nondisclosure of kickback prevented renegotiation of contracts at better price); United States v. Rudi, 902 F. Supp. 452, 456-57 (S.D.N.Y. 1995); and First Fidelity Securities Group, supra, 61 S.E.C. Docket at 78. <(6)> See Exchange Act Rule 15c2-12. As the Commission stated in proposing the Rule: By participating in an offering, an underwriter makes an implied recommendation about the securities . . . [T]his recommendation itself implies that the underwriter has a reasonable basis for belief in the truthfulness and com- pleteness of the key representations made in any disclosure documents used in the offerings. Exchange Act Release No. 26100, 41 S.E.C. Docket 1402, 1411 (Sept. 22, 1988). ======END OF PAGE 7====== Sewer Refunding and the Grady Hospital Refunding failed to disclose the payment to the Financial Advisor. The Official Statement for the Duval School Refunding failed to disclose the success fee paid to the Outside Consultant. Because the existence of these payments cast doubt on the integrity of the offering process for the respective bond issues, they were material to investors. As the Commission has said, "information concerning financial and business relationships and arrangements among the parties involved in the issuance of municipal securities may be critical to an evaluation of an offering." Statement of the Commission Regarding Disclosure Obligations of Municipal Securities Issuers and Others, Exchange Act Release No. 33741, 56 S.E.C. Docket 596, 599 (Mar. 9, 1994). 3. Scienter Both the Former Partner and the Former Vice-President acted with the requisite scienter, see Shivangi v. Dean Witter Reynolds, Inc., 825 F.2d 885, 889 (5th Cir. 1987) (defining scienter as a mental state embracing "intent to deceive, manipulate, or defraud . . . or severe recklessness" (citations omitted)). This is evidenced by their efforts to keep hidden the arrangement with and payment to the Financial Advisor and their use and compensation of the Outside Consultant, including by making the payment to the Financial Advisor through an indirect channel, and also using false and misleading documentation submitted to Lazard Freres in connection with the payment to the Financial Advisor and the payment of the Duval success fee to the Outside Consultant. By virtue of their positions with Lazard Freres, the mental states of the Former Partner and Former Vice-President may be imputed to Lazard Freres.<(7)> 4. Jurisdiction In order for there to be a violation of the antifraud provisions it would be necessary to find that the nondisclosures of the arrangement with and payment to the Financial Advisor and the use and compensation of the Outside Consultant were in connection with the purchase or sale of securities.<(8)> The nondisclosures satisfied this requirement, because they "touch[ed]" on DCSB's, Fulton County's and the FDHA's sale of the securities. Superintendent of Insurance of New York v. Bankers Life & Cas. Co., 404 U.S. 6, 12-13 (1971). The information withheld was material to the issuers' decision to select Lazard Freres as <(7)> See Sharp v. Coopers & Lybrand, 649 F.2d 175 (3d Cir. 1981), cert. denied, 455 U.S. 938 (1982); Rochez Bros., Inc. v. Rhoades, 527 F.2d 880, 884 (3d Cir. 1975). See also American Soc'y of Mech. Eng'rs, Inc. v. Hydrolevel Corp., 456 U.S. 556, 565-566 (1982). The Commission need not show scienter to establish a violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act. <(8)> The Commission need not show any financial loss in order to satisfy this element. SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985). ======END OF PAGE 8====== underwriter, and selection of underwriters had a direct nexus with the issuers' sale, and in turn, the public's purchase of the issuers' securities. B. Violations of Section 15B(c)(1) of the Exchange Act and MSRB rules G-17 and G-20 Section 15B(b) of the Exchange Act established the Municipal Securities Rulemaking Board ("MSRB") and empowered it to propose and adopt rules with respect to transactions in municipal securities by brokers, dealers and municipal securities dealers. As associated persons of broker- dealers, the Financial Advisor, the Former Partner and the Former Vice- President were bound by the MSRB rules. Pursuant to Section 15B(c)(1), a broker-dealer or municipal securities dealer is prohibited from using the mails or any instrumentality in interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any municipal security in violation of any rule of the MSRB. As a municipal securities dealer, Lazard Freres is subject to Section 15B(c)(1) of the Exchange Act and the MSRB rules. By virtue of the above-described conduct of the Former Partner and the Former Vice-President in connection with the Fulton Water and Sewer, Grady Hospital and Duval School Refundings, Lazard Freres is responsible for violating Section 15B(c)(1) of the Exchange Act and MSRB rules G-17 and G-20. 1. MSRB rule G-17 MSRB rule G-17 is a fair dealing rule. The failure to disclose financial and other relationships between a fiduciary of an issuer and an underwriter that create potential or actual conflicts of interest violates MSRB rule G-17. See Lazard Freres & Co. LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Exchange Act Rel. No. 36419 (Oct. 26, 1995); SEC v. Ferber, Lit. Rel. No. 15193 (December 19, 1996); First Fidelity Securities Group, supra; SEC v. Busbee, Lit. Rel. Nos. 14387 (January 23, 1995) and 14508 (May 24, 1995)); SEC v. Rudi, Lit. Rel. Nos. 14421 (February 23, 1996) and 15202 (December 30, 1996). 2. MSRB rule G-20 This rule, "Gifts and Gratuities," prohibits municipal securities dealers from (1) giving any thing or service of value worth more than $100 per year; (2) directly or indirectly; (3) to a person other than an employee or partner of such dealer; (4) if such payment or service is in relation to the municipal securities activities of the employer of the re- cipient of the payment or service. MSRB Rule G-20(a). The rule specifically provides that "employer" includes the principal for whom the recipient of the payment or service is acting as agent or representative. The rule is intended to prohibit commercial bribery and covers payments to issuer officials and fiduciaries. By using the Outside Consultant as a conduit for the $41,936 payment to the Financial Advisor, knowing that the Outside Consultant would pass on money to the Financial Advisor at a time when the Former Partner ======END OF PAGE 9====== and the Former Vice-President were soliciting underwriting business for Lazard Freres from the Financial Advisor's principal, Fulton County, the Former Partner and the Former Vice-President "indirectly" gave the Financial Advisor "a thing or service of value . . . in excess of $100." C. Books and Records Violations Section 17(a)(1) of the Exchange Act requires brokerage firms to create and maintain books and records reflecting their operations and dealings as required by rules promulgated by the Commission. Rule 17a- 3 specifies the books and records that brokerage firms must create pursuant to Section 17(a). The MSRB's books and records provisions parallel the Commission's. MSRB rule G-8 is the provision requiring municipal securities dealers to make certain books and records concerning their municipal securities business. The rule requires that the information be recorded "clearly and accurately." MSRB rule G-8(b). The Commission has described the records maintained by broker-dealers as "the basic source documents and transaction records of a broker-dealer," and the "keystone of the surveillance of brokers and dealers by our staff and by the securities industry's self-regulatory bodies." Edward J. Mawod & Co., 46 S.E.C. 865, 873 n. 39 (1977) aff'd sub nom. Edward J. Mawod & Co. v. SEC, 591 F.2d 588, 594 (10th Cir. 1979). The conduct of the Former Partner and the Former Vice- President caused the books and records of Lazard Freres to be inaccurate with respect to the payment to the Outside Consultant on the Duval School Refunding, the payment to the Financial Advisor (via the Outside Consultant) on the Fulton Water & Sewer Refunding, and the reimbursement of political contributions. With respect to each of these transactions, Lazard Freres' books and records failed to accurately record the true nature of the payments, and characterized them in a misleading manner. IV. FINDINGS On the basis of this Order and the Offer, the Commission finds that Lazard Freres willfully violated Sections 10(b), 15B(c)(1) and 17(a) of the Exchange Act and Rules 10b-5 and 17a-3 thereunder, Sections 17(a)(2) and 17(a)(3) of the Securities Act and MSRB rules G-8, G-17 and G-20. ======END OF PAGE 10====== V. OFFER OF SETTLEMENT Lazard Freres has submitted an Offer of Settlement that the Commission has determined to accept.<(9)> In determining to accept the Offer, the Commission considered the remedial efforts promptly undertaken by Lazard Freres and the cooperation Lazard Freres afforded the Commission staff. In its Offer, Lazard Freres consents, without admitting or denying, to the entry of this Order making findings as set forth above, and ordering Lazard Freres to cease and desist from committing or causing any violation of and committing or causing any future violation of Sections 10(b), 15B(c)(1) and 17(a) of the Exchange Act and Rules 10b-5 and 17a-3 thereunder, Sections 17(a)(2) and 17(a)(3) of the Securities Act and MSRB rules G-8, G-17 and G-20. <(9)> In conjunction with the resolution of this matter, Lazard Freres has entered into a separate civil settlement with the Department of Justice. As part of that settlement, Lazard Freres has agreed to make restitutionary payments to Fulton County and the FDHA, and to make a civil settlement payment in the amount of $10 million. ======END OF PAGE 11====== VI. ORDER Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Sections 15B(c)(2) and 21C of the Exchange Act: A. That Lazard Freres cease and desist from committing or causing any violation of and committing or causing any future violation of Sections 10(b), 15B(c)(1) and 17(a) of the Exchange Act and Rules 10b-5 and 17a-3 thereunder, Sections 17(a)(2) and 17(a)(3) of the Securities Act and MSRB rules G-8, G-17 and G-20; B. That Lazard Freres pay a civil penalty in the amount of $1 million pursuant to Section 21B of the Exchange Act. Payment shall be made within ten (10) days of the date of this order. Payment shall be made by wire transfer, to the United States Treasury. Documentation confirming the wire transfer shall be hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6342 General Green Way, Stop 0-3, Alexandria, VA 22312, under cover of letter identifying the name and number of this administrative proceeding and the Respondent. A copy of the cover letter and wire transfer documentation shall be simultaneously transmitted to J. Lee Buck, II, Senior Counsel, Division of Enforcement, Securities and Exchange Commission, Stop 7-5, Washington, DC 20549. By the Commission. Jonathan G. Katz Secretary ======END OF PAGE 12======