Final Answer:
Salomon Brothers' downfall was primarily caused by a bond trading scandal in 1991, revealing widespread illegal bidding practices that tarnished the firm's reputation and led to financial consequences.
Step-by-step explanation:
Salomon Brothers, once a prominent investment bank, faced a significant downfall primarily due to a bond trading scandal that unfolded in 1991. The root cause was the revelation of illegal bidding practices in the U.S. Treasury bond market. Traders at Salomon Brothers were involved in submitting false bids to manipulate the market and gain unfair advantages.
This scandal severely damaged the firm's reputation as it raised questions about the integrity and ethical standards of Salomon Brothers. The illegal activities came to light when the firm was discovered to have violated Treasury auction rules. As a result, the U.S. government took regulatory action against Salomon Brothers, imposing fines and sanctions.
The repercussions were severe, impacting the firm's profitability and leading to a loss of trust among clients and investors. The scandal also triggered legal investigations and increased regulatory scrutiny. In the aftermath, Salomon Brothers struggled to recover its standing in the financial industry, ultimately marking the end of its once-dominant position.