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5 Brokerages To Pay $8.25 In Fines

Regulators: Firms Didn't Keep E-Mails

Dec 4, 2002 | Bloomberg News

Five securities firms agreed to pay fines totaling $8.25 million for failing to retain e-mails sought by regulators investigating analysts' conflicts of interest.

Citigroup Inc.'s Salomon Smith Barney brokerage unit, Deutsche Bank AG, Goldman Sachs Group Inc., Morgan Stanley, and U.S. Bancorp Piper Jaffray Inc. agreed to pay $1.65 million each, securities regulators said in a statement.

The fines are a fraction of those being sought by state and federal regulators to settle allegations that 12 firms, including these five, misled investors with their research. New York Attorney General Eliot Spitzer and other regulators found e-mails in which analysts privately disparaged stocks of banking clients that they publicly recommended and are seeking penalties ranging from $50 million to $500 million to settle those probes.

''It's rather ironic that preserved but unflattering e-mail brings a $100 million fine from the New York attorney general while destroying e-mail results in a $1.6 million fine from market regulators,'' said former SEC enforcement lawyer Jacob Frenkel, a partner at Smith, Gambrell & Russell in Washington.

Merrill Lynch & Co., the largest US brokerage, this year agreed to pay $100 million to settle charges by Spitzer's office based on e-mails from Internet analyst Henry Blodget. Spitzer released e-mails in which Blodget described Internet companies such as At Home Corp. as a ''piece of crap'' and InfoSpace Inc. as a ''piece of junk,'' while analysts maintained positive ratings on the companies. The firm has said the e-mails were taken out of context. Merrill is a passive minority investor in Bloomberg LP, the parent of Bloomberg News.

The fines were imposed by the Securities and Exchange Commission, National Association of Securities Dealers and the New York Stock Exchange.

''They're sending a mixed message if the punishment is lighter for actually losing records,'' said Tom Curran, a securities lawyer at Edwards & Angel who spent six years investigating white-collar crime at the Manhattan district attorney's office.

Under state and federal regulators' current proposal, however, Citigroup would pay the largest fine, as much as $500 million, to settle the probe of its research practices.

The five investment banks failed to preserve e-mails concerning firm business, including interoffice memoranda and communications, for the required two-year or three-year periods, the SEC, New York Stock Exchange and NASD said. Each firm consented to the findings without admitting or denying the allegations.


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