NOW IT IS the bankers' turn.

Just as accountants and analysts have faced scrutiny for their roles in recent corporate scandals, investment bankers are under the spotlight in the wake of huge bond losses involving companies such as Global Crossing Ltd. and WorldCom Inc.

New York Attorney General Eliot Spitzer is considering opening a new investigation into the activities of investment bankers who sold securities of companies that later cratered, costing investors hundreds of billions of dollars in losses while earning huge fees for themselves.

Mr. Spitzer's inquiry -- which wouldn't start until his current probe into Wall Street analysts is completed -- would focus on whether investment bankers knew about misleading or incorrect statements by companies selling stocks and bonds, and whether the bankers checked out these statements as they are obligated to do.

"There are a range of inquiries being posed that relate to whether there were fundamental misstatements, or questions that should have been asked and weren't, by those happy to market these deals that often left investors holding paper that became much less valuable," Mr. Spitzer said in an interview.

Since 1996, Wall Street investment bankers sold about $272 billion of bonds for telecommunications companies alone, and pocketed $1.97 billion in fees from these deals, not much less than the $2.69 billion from underwriting telecom stock deals, according to Thomson Financial. Among the biggest underwriters, Salomon Smith Barney, a unit of Citigroup, earned $499 million from telecom deals, Merrill Lynch & Co. made $318 million, Morgan Stanley earned $297 million, Goldman Sachs made $200 million, and Credit Suisse First Boston made $187 million.

So much money was raised in selling bonds, however, that there was an overbuilding of telecom networks and systems. As a result of this capacity glut, and because demand grew less than expected, many telecom companies went bust, unable to drum up enough business to cover the interest costs of the bonds they sold.

Among those defaulting on their bonds -- which now are worth only pennies on the dollar -- were Global Crossing, Winstar Communications Inc., XO Communications Inc. and Teligent Inc.

Mr. Spitzer's office also is interested in whether investors were properly warned about the dangers before buying some of these securities, people familiar with the matter said. WorldCom bonds, for instance, were trading as recently as this spring at about 70 cents on the dollar; now, they've fallen to about 15 cents.

But any inquiry would face tricky questions: What is the obligation of a banker doing a deal to investigate the company issuing the security? Where do the issuers' responsibilities stop and the investors' obligation to check out where they put their money begin?

William Lerach, lead lawyer for Enron Corp.'s shareholders in a lawsuit recently brought against Arthur Andersen and Enron's bankers, is examining the WorldCom's May 2001 bond offering on behalf of several institutional investors. The bond deal, for a record $11.8 billion, has left investors with staggering losses of about $10 billion in the past 13 months.

"The underwriter is liable for any material false statement in, or omission from, the prospectus," Mr. Lerach said. "It may avoid liability only by satisfying its burden of proof that it conducted an adequate due diligence investigation to assure that the prospectus was free of material falsehoods or omissions. In this case, how could they, given the extraordinary nature of the falsification that occurred."

At issue in last year's WorldCom bond offering is the inclusion in the prospectus of financial statements from the first quarter of 2001, which the company now acknowledges included profit and cash-flow figures that were inaccurate.

Salomon Smith Barney and J.P. Morgan Chase & Co. served as lead underwriters on the WorldCom bond deal. The losses from WorldCom's bonds have hurt mutual funds, insurance companies, pension plans and even some individual investors. Yesterday, the California Public Employees' Retirement System, the nation's largest public pension fund, said it is facing $330 million in losses from WorldCom's bonds, as well as $230 million from its stock. American Express Co. said it will write down $90 million in WorldCom bonds.

"We believe we did thorough due diligence and the kind of fraud that has been revealed is not the kind the underwriters could have ever picked up," a spokeswoman for J.P. Morgan said.

"The underwriters conducted thorough due diligence in connection with WorldCom's bond offering, including reliance on the company's audited financial statements," said a spokesman for Salomon Smith Barney. "The federal securities laws make clear that underwriters may properly rely on financial statements that have been certified by the company's accountants."

After passage of the 1996 Telecommunication Act, which promised to level the playing field in the telecom world, all kinds of ambitious companies came to the bond market to raise money. Bankers traveled the country selling these bonds, which often came with a "junk" rating, to fund the expansion plans of these companies.

Given the speed with which some of these junk bonds defaulted, there is plenty of embarrassment to go around, both for the underwriters who sold the bonds and the institutional investors, such as mutual funds and pension funds, that bought them. Some investors acknowledge that for buyers who are sitting on losses, it could be tough luck.

It could be hard to hold Wall Street accountable unless it turns out that underwriters failed to disclose material facts to investors, or were negligent in doing due diligence on information supplied by the company. For that matter, it is unclear what kind of obligation investment bankers have to research their clients and uncover improprieties or business prospects before they help sell a bond deal.

Still, some experts question if bankers did enough to warn investors before they got into these deals. "When offerings blow up, underwriters are at serious risk," said securities lawyer David M. Becker of Cleary, Gottlieb, Steen & Hamilton, who until last month served as general counsel for the Securities and Exchange Commission.

But in recent weeks it has become clear that many of the companies, such as WorldCom and Qwest Communications International Inc., were boosting their earnings, cash flow or revenues through aggressive, and sometimes improper, techniques. Qwest is under investigation by the SEC for whether it sold fiber on its network to a competitor and at the same time purchased a like amount of capacity, boosting the company's revenue by $1 billion last year. Such trades were known by many in the industry last year, and some say bankers should have warned investors that the revenue figures may have been inflated when a Qwest unit conducted bond sales last year.

Treasurys

Most Treasury maturities ended sharply lower in a correction from gains Wednesday, when news of accounting problems at WorldCom sparked flows into government bonds. A rebound in stocks also pressured bond prices.

But short maturities firmed after the Treasury delayed formal announcement of next week's bill auctions because Congress hadn't raised the federal debt limit.

At 4 p.m., the benchmark 10-year note's price was down 21/32 point, or $6.56 per $1,000 face value, at 100 13/32. Its yield rose to 4.821% from 4.737% Wednesday, as yields move inversely to prices.

The 30-year bond's price was down 1 10/32 points at 97 31/32 to yield 5.516%, up from 5.424% Wednesday. Longer maturity Treasurys saw some selling by fund managers shifting money from bonds to stocks as stocks recovered from session lows.

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Steven Vames and Richard A. Bravo contributed to this article.

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                  Big Bonds, Big Fees 

  Some of the largest debt offerings of the second-half of 2001 and so 
far in 2002, and the underwriter profits they generated: 

                                 Underwriters' profit 
 Proceeds,                   (Gross spread in this market), 
 in millions    Bookrunner(s)*       in millions 

AT&T Corp. Nov. 15 '01 
 $10,086.7      SSB; GS; CSFB          $6.173 
  10,086.7      SSB; GS; CSFB          12.375 
  10,086.7      SSB; GS; CSFB           5.250 
  10,086.7      SSB; GS; CSFB           2.646 
  10,086.7      SSB; GS; CSFB          24.063 

AT&T Wireless Services April 11 '02 
   3,000.0      LEH; ML; JPM            0.625 
   3,000.0      LEH; ML; JPM            9.000 
   3,000.0      LEH; ML; JPM            2.625 

BellSouth Corp. Oct. 22 '01 
   2,750.0      MS; SSB                 3.500 
   2,750.0      SSB; ML                 4.500 
   2,750.0      SSB; ML                 6.563 

Cingular Wireless Dec. 6 '01 
   2,000.0      JPM; LEH: GS            6.563 
   2,000.0      JPM; LEH: GS            4.875 
   2,000.0      JPM; LEH: GS            3.000 

Qwest Capital Funding July 25 '01 
   3,750.0      LEH; ML                 4.375 
   3,750.0      LEH; ML                11.000 
   3,750.0      LEH; ML                 4.375 

Verizon Wireless May 9 '01 
  11,845.2      SSB; JPM                2.557 
  11,845.2      JPM; SSB               40.250 
  11,845.2      JPM; SSB               18.000 
  11,845.2      SSB; JPM                4.424 
  11,845.2      JPM; SSB                3.75 

  *SSB: Salomon Smith Barney; GS: Goldman Sachs; CSFB: Credit Suisse 
First Boston; LEH: Lehman Brothers; ML: Merrill Lynch; JPM: J.P. Morgan 

  Source: Thomson Financial