What The Heck Is A `Prime Bank' Note?

When Lawrence Gerschel received his M.D. in 1978, his grandfather, legendary financier Andre Meyer, couldn't have been prouder. The Lazard Frres & Co. chief and adviser to the rich and famous, including the late Jacqueline Kennedy Onassis, admired great physicians and donated huge sums to medical research. In 1979, Meyer died at the age of 81, leaving a fortune conservatively estimated at $90 million to his wife, Bella, Lawrence, and three other grandchildren. About three years later, Gerschel, then reputedly worth at least $30 million, chucked his medical career for the business world. If Meyer knew what regulatory and law enforcement authorities allege about his grandson, he might turn over in his grave.

BUSINESS WEEK has learned that the Securities & Exchange Commission and the Manhattan District Attorney's office have launched investigations into Gerschel's New York-based Trust Group, which he set up in 1991 with two partners. Sources close to the D.A.'s probe say that a grand jury has recently issued subpoenas to Gerschel and his partners to determine whether the firm has trafficked in the netherworld of phony "prime bank" instruments, including notes, debentures, and guarantees.