Make It $40 Million

In 1991, when Warren E. Buffett stepped in to rescue Salomon Inc. from the fallout from the Treasury bond bid-rigging scandal, part of his strategy was to cast CEO John H. Gutfreund and bond trader Paul W. Mozer as the central culprits. The Securities & Exchange Commission and the Justice Dept. ultimately agreed with him. Mozer was sentenced to four months in prison and fined $30,000. For failing to supervise employees, Gutfreund was fined $100,000 and banned from running a brokerage again. And Salomon revoked the 1991 bonus, stock options, and severance pay he otherwise would have been entitled to and refused to pay his legal fees.

Buffett's dealings with Gutfreund, though, are far from over. A bitter struggle between the two men is being played out at 20 Broad St., in the drab arbitration rooms of the New York Stock Exchange. At issue, say Wall Street sources: Was Salomon justified in withholding Gutfreund's compensation when he left? The former King of Wall Street is seeking $40 million, say several peo-ple familiar with his case. Neither Salomon nor Gutfreund would comment.

The $40 million far exceeds the approximately $12.3 million in claims Gutfreund had previously made, according to Salomon's proxy of

Mar. 25, 1992. At that time, Gutfreund claimed a $2 million bonus for 1991, approximately $4.5 million for two years of severance pay, $343,497 from a special bonus plan, and options for 744,900 Salomon shares, which he was not permitted to exercise.

BIG HUGS. Gutfreund's claims against Salomon are being weighed by a panel of industry arbitrators. Disputes among securities firms are usually resolved in proceedings at the NYSE or other stock exchanges. Gutfreund has been spotted at the hearing room greeting a former colleague with a big hug. But other Salomon employees are testifying against Gutfreund, Street sources say.

Emotions are running high. Gutfreund's supporters argue that their cigar-chomping chieftain spent years building up Salomon's business and that he deserves the money the firm refused to pay him. They point out that Gutfreund was not charged with being directly responsible for the scandal. His only mistake, they say, was not promptly reporting it to authorities.

Hogwash, say his detractors. They claim that Gutfreund, as CEO, was guilty of lax management and letting traders run amok. Given the disastrous financial impact on the firm from the scandal, they argue, Gutfreund is the last one who deserves a bonus. But more than money is on the line in this face-off between Wall Street legends.

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