What's This Little Fish Doing In Such A Big Pond?

When the government proposed a $1.8 billion stock sale to privatize the U.S. Enrichment Corp. (USEC), the federal agency that processes uranium ore, Wall Street was aglow with the prospect of fees approaching $80 million. Two dozen investment banks vied for a share of the USEC underwriting contract. But when the eight winners were announced in November, one was a puzzler. There, among such heavy hitters as Merrill Lynch and Morgan Stanley, was M.R. Beal, a fledgling minority broker with scant equity underwriting experience.

How did tiny New York-based Beal get into the charmed circle? The USEC says it unofficially was looking for a minority firm to add diversity to the team, and that the winners were chosen on merit. But minority rivals say far more qualified candidates bid for the job, and that favoritism tilted the balance. "People are stunned," fumes Napoleon Brandford, co-chairman of Grigsby Brandford & Co., a San Francisco-based minority brokerage. "It's incredible that [the USEC] can do this and get away with it."

PALE CAPITAL. Rivals suspect that Mozelle Thompson, deputy assistant secretary for government financial policy at the Treasury Dept., steered the deal to M.R. Beal & Co. over at least eight other minority firms. "I'll have to call him and thank him, if that's true," says founder Bernard B. Beal, who insists he has no knowledge of any special help.

M.R. Beal's specialty is muni-bond underwriting--not floating big equity issues. It has 40 employees and a capitalization of only $2.8 million. The firm's capital has fallen 40% in the past two years, and it has no seat on the stock exchange. And Beal's capital pales next to the other winning underwriters: The figures range from $78 million to $2.8 billion for the other seven.

M.R. Beal also has had its share of scrapes with securities regulators. New York City has excluded the brokerage firm as an underwriter since late 1994. The reason: City officials learned that Beal was being probed by the U.S. Attorney's office in Milwaukee over allegations that Gary R. George, a Wisconsin state senator, accepted bribes from muni-bond firms that were angling for state business.

In November, 1993, M.R. Beal was censured and fined $8,000 by the National Association of Securities Dealers. Without admitting or denying the accusations, Bernard Beal settled the NASD charges against his firm for allowing an unlicensed employee to sell Resolution Trust Corp. securities. For the past four years, Beal has been the District of Columbia's co-adviser on municipal finance. But the Securities & Exchange Commission is now investigating whether the District violated securities laws by failing to fully disclose the size of its budget deficit when it sold $250 million worth of notes last December, sec sources say.

DOUBLE STANDARD? Beal defends his record. While the U.S. Attorney's Office in Milwaukee declined to comment on the George investigation, Beal says he was notified earlier this year that his firm isn't a target of the bribery probe. Beal, 41, also contends that the NASD charge was a procedural slap on the wrist that pales beside the multimillion-dollar sec fines levied previously against most of the Wall Street firms involved in the USEC deal. He denies his firm is a target of the Washington probe.

Rivals say that Beal was helped by his ties to Thompson, who was one of 16 members of the underwriter selection committee. During Thompson's 1990-93 tenure as chief counsel of three New York State financing agencies, M.R. Beal managed $2.7 billion of the agencies' muni underwriting, according to Securities Data Co. Thompson heatedly denies the charge: "I was not an advocate for any firm," he insists.

Rivals aren't satisfied. "What does that say about our government's commitment to competitive equality?" fumes Muriel F. Siebert, whose 28-year-old New York equity firm didn't make the final eight.

Sour grapes, Beal fires back. He notes that his firm has two research analysts and four traders who sell 1 million equity shares a day. "USEC hired us because we are a good firm," he says.

The USEC issue is a plum deal, with huge fees to be divvied up among the underwriters. M.R. Beal stands to reap a tidy profit--even if Bernard Beal fails to dispel the controversy over whether he belongs in the group at all.

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