3 Brokerages Targeted in SEC Bond Probe

Merrill Lynch & Co., Smith Barney Inc. and Paine Webber Group Inc. are being questioned by the Securities and Exchange Commission about whether they overcharged municipalities in bond sales, according to documents and people involved with the inquiry. The SEC is examining these firms and about a half-dozen others to see if local and state governments paid them millions of dollars too much for government bonds used to refinance higher-cost municipal debt, a source knowledgeable about the inquiry told Bloomberg News. Prudential Securities Inc., Alex. Brown Inc. and Lazard Freres & Co. have previously acknowledged they are being questioned by the SEC as part of a 2-year-old inquiry into the bond-sale practice known as yield burning. The SEC may eventually file charges in at least some of the cases now under investigation, though no charges are imminent, the source said. The SEC and Paine Webber declined to comment. Merrill and Smith Barney said they are cooperating.