• U.S.

Securities: Where Did the $300 Million Go?

1 minute read

Executives of E.S.M. Government Securities of Fort Lauderdale liked to behave as if every year were a winner. They drove Mercedes and Jaguars and paid themselves salaries of up to $500,000. In fact, the nine-year-old company, a dealer in bonds, notes and bills, has been a money loser almost from the start. When it finally collapsed last week in the biggest failure of its kind since Drysdale Government Securities went under in 1982, dozens of cities, financial institutions and other creditors stood to be out as much as $300 million. Among the potential victims were Beaumont, Texas, which could lose $20 million, and Miami’s American Savings and Loan, which may drop $60 million. E.S.M. had attracted investors by offering guaranteed high interest rates for short-term loans. The funds were supposedly backed by government securities that E.S.M. promised to put up as collateral. When it turned out last week that many of the government certificates could not be found, the Securities and Exchange Commission sued E.S.M. for fraud. In Congress, District of Columbia Democrat Walter Fauntroy called for industry guidelines that would encourage unregulated dealers to beef up their capital as a hedge against losses.

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