SECURITIES EXCHANGE ACT OF 1934 Release No. 41225 / March 30, 1999 ADMINISTRATIVE PROCEEDING File No. 3-9858 PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS INSTITUTED AGAINST PETER W. ZENT AND MICHAEL A. CORNBLUM The Commission announced that it has instituted public administrative and cease-and-desist proceedings against Peter W. Zent and Michael A. Cornblum (collectively "Respondents"). The Order Instituting Proceedings ("Order") alleges that Respondents generated nearly $3.5 million in wrongful profits from a 1993 financing transaction for the City of Tampa, Florida ("City") as the result of "yield burning": in this case, the purchase of an Escrow Reinvestment Agreement ("Agreement") at below its fair market value in order to reduce the yield to the City. The Order alleges that in late 1993 Zent, then a Senior Vice President at Kidder, Peabody & Co. Incorporated ("Kidder") and Cornblum (who was a consultant to Kidder) agreed to solicit bids on behalf of the City for the right to enter into an Agreement. The purpose of the Agreement was to provide the City with additional investment income on the proceeds of certain previously-issued, tax-exempt advance refunding bonds, which proceeds the City then held in escrow. The Order alleges that, in addition to agreeing to solicit bids on the Agreement, Kidder entered its own bid, was declared the winning bidder and was awarded the Agreement in December 1993. To ensure that Kidder won, the Order alleges, Cornblum rigged the bidding by: (1) providing false information to at least one bidder, which caused that bidder to undervalue the Agreement and submit an artificially low bid; and (2) obtaining another artificially low bid from a company with which he was affiliated, without disclosing his affiliation to the City. The Order alleges that, as a result of the foregoing conduct, Kidder was able to win the Agreement with a bid of $1.319 million, more than $3.0 million below what Kidder then believed the Agreement was worth. In connection with the award of the Agreement, Zent and Cornblum made certain representations to the City regarding the bidding process and the value of the Agreement. Zent and Cornblum either knew or recklessly disregarded that these representations were false. Subsequent purchases and sales of securities under the Agreement generated profits of nearly $3.5 million. Of this amount Kidder retained almost $1.67 million, and transferred the balance, or $1.78 million, to another broker-dealer affiliated with Cornblum. The Order alleges Respondents violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, which prohibit fraudulent conduct in connection with the purchase or sale of securities. A hearing will be scheduled to determine if the staff's allegations are true and, if so, whether cease-and-desist orders, disgorgement, civil money penalties and other sanctions are appropriate against the Respondents. In a related matter, the Commission announced that it had instituted and simultaneously settled a public administrative proceeding against Kidder relating to the same transaction involved in the Order discussed above.