UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 34-40913 / January 11, 1999 ADMINISTRATIVE PROCEEDING File No. 3-9803 ___________________________________ : In the Matter of : ORDER MAKING FINDINGS : AND IMPOSING CERTAIN MARKET MAKING : SANCTIONS AS TO ACTIVITIES ON NASDAQ : LEHMAN BROTHERS : INC. : ___________________________________: I. In the accompanying Order Instituting Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 and Findings of the Commission ("Order Instituting Proceedings"), the Securities and Exchange Commission ("Commission") instituted these public administrative proceedings against Lehman Brothers Inc. and other firms and individuals. Contemporaneously, Lehman Brothers Inc. ("Respondent") has submitted an Offer of Settlement ("Offer") in anticipation of the institution of these proceedings, which the Commission has determined to accept. In its Offer, Respondent, solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, prior to a hearing pursuant to the Commission’s Rules of Practice, and without admitting or denying the findings herein, except for the findings of Section II.A., which are admitted, have consented to the entry of the Order Instituting Proceedings and this Order Making Findings and Imposing Sanctions as to Lehman Brothers Inc. (which are hereinafter referred to as the "Orders"). The Commission has determined that it is appropriate and in the public interest to accept the Respondent’s Offer and accordingly is issuing this Order. II. On the basis of the Orders and Respondent’s Offer, the Commission finds[1] the following: A. Respondent Lehman Brothers Inc., a Delaware corporation, is registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act"). At all relevant times, Lehman Brothers Inc. made markets in a number of securities traded in the Nasdaq market. Lehman Brothers Inc.'s principal place of business during the relevant time period was New York, New York. Lehman Brothers Inc. traded Nasdaq stocks for its own accounts and for the accounts of institutional and retail investors. At all times relevant herein, Lehman Brothers Inc. was a member of the National Association of Securities Dealers, Inc. ("NASD"), a national securities association registered with the Commission under Section 15A of the Exchange Act. B. Factual Summary In connection with its activities as a Nasdaq market maker, Lehman Brothers Inc. engaged in the following activities, as more fully described in the applicable sections of the accompanying Order Instituting Proceedings, in the following securities and on the following dates. 1. The Fraudulent Coordination of Quote Movements Lehman Brothers Inc. engaged in, or caused, the coordinated entry of quotations on Nasdaq in violation of Sections 15(c)(1) and (2) of the Exchange Act and Rules 15c1-2 and 15c2-7 thereunder, in one or more of the respects described in Section II.C.1. of the Order Instituting Proceedings in a market making transaction or a related series of market making transactions in: a. the stock of Aspect Telecommunications ("ASPT") on October 19, 1994; b. the stock of Fifth Third Bancorp ("FITB") on August 11, 1994; and c. the stock of Adobe Systems, Inc. ("ADBE") on June 9, 1994. **FOOTNOTES** [1]: The findings herein are solely for the purpose of these proceedings, and are not binding on any person not a respondent in these proceedings. 1 2. Undisclosed Arrangements to Coordinate Quotations Lehman Brothers Inc. entered, or caused to be entered, in the Nasdaq market fictitious quotations in one or more respects described in Section II.C.2. of the Order Instituting Proceedings in violation of Section 15(c)(2) of the Exchange Act and Rule 15c2-7 thereunder, in a market making transaction or related series of market making transactions in: a. the stock of Informix Corporation ("IFMX") on April 18, 1994. 3. Best Execution Violations Lehman Brothers Inc. failed, or caused the failure, to provide best execution in the handling of customer orders in one or more of the respects described in Section II.C.5. of the Order Instituting Proceedings in violation of Section 15(c)(1) of the Exchange Act and Rule 15c1-2 thereunder, in a market making transaction or related series of market making transactions in: a. the stock of Genzyme Corporation ("GENZ") on August 24, 1994. 4. Failure to Reasonably Supervise Nasdaq Trading Lehman Brothers Inc. failed reasonably to supervise its Nasdaq market making activities with a view to preventing future violations within the meaning of Section 15(b)(4)(E) of the Exchange Act, in one or more of the respects described in Section II.C.8.a. and b. of the Order Instituting Proceedings, and in the other following respects: a. In 1994, Respondent Lehman Brothers Inc. failed to adequately enforce its policies and procedures regarding the "best execution" of customer orders. Lehman Brothers Inc. did not provide sufficient training and guidance to its Nasdaq traders of theirobligation inexecuting customer orders to provide the mostfavorable price as possible under the prevailing market conditions. 5. Unlawful Profits and Other Gains While engaged in certain of the improper activities described above, Lehman Brothers Inc. obtained unlawful profits and gains, which, together with interest, total $7,813. 2 III. By reason of the foregoing, Lehman Brothers Inc. willfully violated Sections 15(c)(1) and (2) of the Exchange Act, and Rules 15c1-2 and 15c2-7 thereunder, and failed reasonably to supervise its Nasdaq trading personnel within the meaning of Section 15(b)(4)(E) of the Exchange Act. IV. In view of the foregoing and Respondent’s Offer, IT IS HEREBY ORDERED, pursuant to Sections 15(b) and 21C of the Exchange Act, that: 1. Lehman Brothers Inc. shall cease and desist from committing or causing any violation of, and committing or causing any future violation of Sections 15(c)(1) and (2) of the Exchange Act, and Rules 15c1-2 and 15c2-7 thereunder; 2. Lehman Brothers Inc. shall, within 10 business days of the entry of this Order, pay a civil penalty in the amount of $212,500 by wire transfer in accordance with instructions furnished by the Commission staff, or by U.S. Postal money order, certified check, bank cashier’s check, or bank money order, made payable to the Securities and Exchange Commission, which shall be hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Mail Stop O-3, Alexandria, VA 22312, under cover of a letter that identifies Lehman Brothers Inc. as a Respondent in these proceedings and provides the caption and file number for these proceedings; with (a) written confirmation of payment by such wire transfer, or (b) a copy of such cover letter and money order or check, to be sent to Leonard W. Wang, Division of Enforcement, Securities and Exchange Commission, 450 5th Street, N.W., Mail Stop 7-1, Washington, D.C. 20549; and 3 3. Lehman Brothers Inc. shall, within 10 business days of written notice from the Commission staff or the Independent Consultant appointed by the Commission in this matter, pay disgorgement in the amount of $7,813 pursuant to Section 21C(e) of the Exchange Act. By the Commission. Jonathan G. Katz Secretary 4