SECURITIES EXCHANGE ACT OF 1934
Release No. 41976 / October 5, 1999

ADMINISTRATIVE PROCEEDINGS
FILE NO. 3-9858

________________________________
ORDER MAKING FINDINGS AND
In the Matter of:IMPOSING REMEDIAL SANCTIONS
AGAINST MICHAEL A. CORNBLUM
PETER W. ZENT AND MICHAEL A.
CORNBLUM
Respondents.
________________________________

I.

On March 30, 1999, the Securities and Exchange Commission ("Commission") instituted cease-and-desist and public administrative proceedings pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") against respondent Michael A. Cornblum ("Cornblum" or "Respondent") to determine whether he willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and, if so, what remedial sanctions, if any, were appropriate.

In response to the institution of these proceedings, Cornblum has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings herein, except as to the jurisdiction of the Commission over him and the subject matter of the proceeding, which are admitted, Cornblum consents to the entry of the findings and remedial sanctions set forth below.

II.

On the basis of this Order and the Offer, the Commission makes the following findings:

A. Nature of Proceeding

This matter involves material misrepresentations by Kidder, Peabody & Co., Incorporated ("Kidder"), Cornblum and others in connection with the purchase of an Escrow Reinvestment Agreement ("Agreement"), whereby Kidder was able to purchase the Agreement from the City of Tampa, Florida ("City") at less than fair market value. Kidder's purchase of the Agreement at less than fair market value had the effect of reducing--or "burning"--the yield on that Agreement, a form of "yield burning."

B. Respondent

Cornblum, age 33, was at all relevant times President and a 65% shareholder of Municipal Government Investment Associates, Inc. ("MGIA"). In addition, to being a registered representative of MGIA, Cornblum was at all relevant times also a registered representative of Kirschner Securities ("Kirschner").

C. Other Relevant Persons and Entities

1. MGIA was at all relevant times a San Francisco, California, based broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. MGIA withdrew its registration by filing a Form BDW, which was effective July 1996.

2. Kirschner was at all relevant times a Plano, Texas, based broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. Kirschner withdrew its registration by filing a Form BDW, which was effective February 1996.

3. Kidder was at all relevant times a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. Kidder withdrew its registration by filing a Form BDW, which was effective January 1996.

4. Peter W. Zent ("Zent") was at all relevant times a registered representative of Kidder with the title of Senior Vice President, located in Kidder's Tampa, Florida office.

D. The City's Series 1991 Advance Refunding Bonds

1. In April 1991, the City issued its tax-exempt $138,610,000 Utilities Tax and Special Revenue Refunding Bonds, Series 1991 (the "Series 1991 Bonds"). The Series 1991 Bonds were advance refunding bonds, meaning that the City intended to use the proceeds to repay previously-issued bonds when those bonds became due and payable. Because the previously-issued bonds were not then due and payable, the City set up an escrow account to hold the proceeds from the Series 1991 Bonds.

2. The escrowed proceeds from the Series 1991 Bonds were invested in various federal government securities, which were chosen in amounts and for durations such that they matured as near as possible to the time the City would actually need the proceeds to repay the previously-issued bonds. However, in several instances, the federal government securities matured prior to the time the City actually needed the funds. These gaps, referred to as "float periods", ranged from 45 to 228 days.

3. Pursuant to certain provisions of the Internal Revenue Code ("IRC"), a municipal issuer of tax-exempt advance refunding bonds may invest the bond proceeds so long as the issuer does not earn an overall return on the proceeds materially higher than the yield on the underlying tax-exempt bonds. These provisions are generally referred to as the "IRC arbitrage provisions." An issuer must either structure the escrow in compliance with these provisions or run the risk that the Internal Revenue Service will declare interest on the advance refunding bonds taxable.

4. As originally structured, the return to the City on the escrow for the Series 1991 Bonds was below the yield of 6.892697% on the City's underlying bonds. As a result, an opportunity existed for the City to earn additional investment income if the City could find a proper vehicle through which to invest proceeds from the Series 1991 Bonds during some or all of the float periods in the escrow, so long as that additional income did not cause the overall yield on the escrow to exceed 6.892697%.

E. The Proposal By Kidder And Kirschner To Restructure The Escrow For The Series 1991 Bonds

1. Beginning in 1992, Kidder proposed that the City restructure the escrow for the Series 1991 Bonds. Zent was Kidder's primary representative in making this proposal to the City.

2. Cornblum, who had previously worked with Kidder on several other escrow restructurings, assisted Kidder and Zent in making their proposal to the City. In his dealings with the City, Cornblum presented himself as a representative of Kirschner. At no time did Zent or Cornblum disclose to the City that Cornblum was also affiliated with MGIA.

3. In addition, at no time did Zent or Cornblum disclose to the City that Kidder and MGIA had a written agreement to split any profits that either Kidder or MGIA made from an escrow restructuring transaction with the City (the "Joint Venture Agreement").

4. The proposal Kidder and Kirschner presented to the City focused on seven float periods in the escrow. Under the proposal, Kidder would make an initial cash payment to the City, and Kidder would obtain the right, at the outset of each float period, to sell to the escrow a federal government security that matured on or before the end of the float period, in an amount at least equal to the amount the City needed to meet its underlying repayment obligation. Kidder would then have the right to reinvest the available cash proceeds from the escrow for the duration of the float period and retain for itself any reinvestment earnings. At the end of the float period, Kidder would retain both the principal amount of the proceeds and any reinvestment earnings, and the City would retain the initial cash payment and the government security provided by Kidder, which would mature as needed to meet the City's underlying repayment obligation.

5. The proposed initial payment to the City represented additional investment income on the escrow. Thus, the size of the initial payment was limited by the requirement that the City's overall return on the escrow not exceed the yield on the City's underlying tax-exempt bonds.

6. In a proposal dated January 11, 1993, Kidder and Kirschner proposed a transaction which would result in a payment to the City of $1,367,928.33. In this proposal, Kidder and Kirschner calculated that the effect of such a payment would be to increase the City's yield on the escrow to 6.892591%, just below the yield restriction of 6.892697%.

7. In late 1993, the City agreed to enter into an Escrow Reinvestment Agreement. However, applicable IRC arbitrage provisions then in effect required that any payment to the City under the Escrow Reinvestment Agreement represent "fair market value" for the reinvestment rights transferred under the agreement. The purpose of the fair market value requirement is to ensure that investment banks and others that enter into such agreements with tax-restricted escrow accounts do not artificially depress the yield to the municipality (and thus allow the municipality to appear to be in compliance with the IRC arbitrage provisions) by purchasing assets from the escrow at below-market prices. Such practices are commonly referred to as "yield burning."

8. IRC arbitrage provisions provided a safe harbor for determining the fair market value of an investment contract such as the Escrow Reinvestment Agreement. The safe harbor rule required, among other things, that an issuer of tax-exempt bonds obtain at least three bona fide bids for the investment contract from providers with no material financial interest in the underlying tax-exempt bond issue, and that the issuer purchase the highest-yielding investment contract for which a qualifying bid is made.

9. As a result, the City required that Kidder and Kirschner solicit bids on the Escrow Reinvestment Agreement from at least three bidders not otherwise involved in the escrow restructuring, to ensure that the initial payment the City received for the Escrow Reinvestment Agreement represented fair market value.

10. At the time, Zent and Cornblum knew that the maximum amount that the City could receive in exchange for the Escrow Reinvestment Agreement was approximately $1.37 million. Zent and Cornblum also knew that the fair market value of the Escrow Reinvestment Agreement was much higher--from approximately $4.3 million to $4.8 million. Thus, Zent and Cornblum knew that an honest bidding process for the Escrow Reinvestment Agreement, as it was then structured, would reveal that the fair market value of the agreement was far in excess of the maximum amount the City could receive.

F. The Rigged Bidding For The Escrow Reinvestment Agreement

1. To induce the City to enter into the Escrow Reinvestment Agreement, and to secure the excess value of that agreement for their firms, Zent and Cornblum colluded to rig the bidding so that they could obtain bids of less than approximately $1.37 million, the maximum amount the City could receive.

2. As part of this effort, Cornblum provided at least one bidder with false information that caused that bidder to submit an artificially low bid. In addition, Cornblum solicited a bid from MGIA. The MGIA bid was improper because MGIA was not a disinterested bidder, due both to Cornblum's affiliation with MGIA and to the Joint Venture Agreement. As a result, the MGIA bid was for $1,208,400, or more than $3.0 million below what Respondents knew to be the fair market value of the Escrow Reinvestment Agreement.

3. Thus, Kidder was able to win the bidding at $1.319 million, more than $3.0 million below what Kidder then believed the Agreement was worth.

G. Material Misrepresentations In The Representation Letter

1. With the bidding complete, the City awarded Kidder the Escrow Reinvestment Agreement and held a closing on December 28, 1993. As part of the closing, Zent, on behalf of Kidder, and Cornblum, on behalf of Kirschner, signed a letter (the "Representation Letter") that contained the following three representations, each of which was false.

2. The first representation was that the yield to the City on the Escrow Reinvestment Agreement was at least equal to the yields offered on similar obligations under similar agreements. This representation was false because, absent Zent's and Cornblum's efforts to rig the bidding, a willing buyer would have paid much more (i.e., provided the City with a much higher yield) than Kidder's winning bid of $1.319 million.

3. The second representation was that in soliciting the bids Kidder and Kirschner did not act in any way to reduce the resulting yield to the City. This representation was false because Cornblum obtained an artificially low bid from at least one bidder by providing that bidder with false information causing that bidder to submit an artificially low bid. In addition, Cornblum obtained an artificially low bid from MGIA, and Kidder's bid was artificially low.

4. The third representation was that Kidder and Kirschner had taken reasonable steps to obtain bids for the Escrow Reinvestment Agreement from at least three bidders not otherwise involved in the escrow restructuring. This representation was false because one of the bids Cornblum obtained was from MGIA, which was not a disinterested bidder.

5. In signing the Representation Letter, Cornblum either knew or recklessly disregarded the fact that each of the representations listed in paragraphs G. 2-4, above, was false.

6. The City's Special Tax Counsel relied on each of these representations in rendering his opinion that entering into the Escrow Reinvestment Agreement would not jeopardize the tax-exempt status of the Series 1991 Bonds. H. Ill-Gotten Gains Resulting From The Escrow Reinvestment Agreement

1. The Agreement contemplated that Kidder would realize its profits over time; at the outset of each float period, Kidder would sell a security to the City in exchange for escrow proceeds, which Kidder would then reinvest for its own benefit. However, the Agreement included a second option which allowed Kidder to substitute securities for those in the escrow, and thus realize its profits sooner.

2. In February 1994, Kidder exercised this second option, which required the City to liquidate certain federal government securities then held in the escrow. The securities at issue were those which, had the City held them to maturity in the escrow, would have produced the proceeds scheduled to be available for reinvestment during each of the seven float periods covered by the Escrow Reinvestment Agreement. The market value of the securities the City liquidated was $142,089,275.40. Pursuant to the terms of the Escrow Reinvestment Agreement, Kidder then required the City to use those proceeds to purchase from Kidder a group of securities which were sufficient to meet the City's repayment obligations on its underlying tax-exempt bonds at the end of each of the seven float periods. The market value of the securities Kidder sold to the City was $137,494,667.37. The difference, approximately $4.6 million, was wired to Kidder by the City's escrow agent pursuant to the Agreement. Kidder also realized commissions of nearly $400,000 for the trades. Thus, the gross profits on the transaction were $4,992,072.72.

3. After deducting Kidder's initial payment to the City and other expenses, net profits on the transaction were $3,461,724.66. Pursuant to the Joint Venture Agreement, Kidder's share of these net profits was $1,676,673.08 and MGIA's share was $1,785,051.58. In March 1994, Kidder transferred $1,785,051.58 to Kirschner. Of this amount, Kirschner retained $556,089.75 and transferred $1,228,961.83 to MGIA. Of the amount transferred to MGIA, Cornblum personally received $526,427.1

III.

In view of the foregoing, the Commission finds that Cornblum willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and further deems it appropriate and in the public interest to impose the sanctions specified by Cornblum in the Offer.

Accordingly, IT IS ORDERED THAT Cornblum:

(1) cease and desist from committing or causing any violation and any future violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;

(2) be, and hereby is, barred from association with any broker or dealer, with the right to reapply for such association after three years from the entry of this Order to the appropriate self-regulatory agency or, if there is none, to the Commission;

(3) pay, within thirty (30) days of the entry of this Order, disgorgement in the amount of $26,427 plus prejudgment interest in the amount of $14,184.73, for a total of $40,611.73. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) mailed by certified mail to the Comptroller, Securities Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted with a cover letter which identifies Cornblum as a respondent in these proceedings, with a copy of said cover letter and money order or check sent to the Securities and Exchange Commission, 44 Montgomery Street, Suite 1100, San Francisco, CA 94104, Attn.: District Administrator; and

(4) pay, within thirty (30) days of the entry of this Order, a civil money penalty in the amount of $100,000. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) mailed by certified mail to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted with a cover letter which identifies Cornblum as a respondent in these proceedings, with a copy of said cover letter and money order or check sent to the Securities and Exchange Commission, 44 Montgomery Street, Suite 1100, San Francisco, CA 94104, Attn.: District Administrator.

By the Commission.

Jonathan G. Katz
Secretary

FOOTNOTES

-[1]- In September 1995, following an investigation by the Department of Justice into the events described herein, MGIA pled guilty to a criminal information charging the firm with one count of wire fraud and one count of securities fraud and fining MGIA $600,000. Of this amount, Cornblum agreed to be personally liable for $500,000.