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Analyze This

Nov 6, 2002 | The Boston Globe In the past few years, even unsophisticated investors have caught on to how to read those Wall Street research reports: A ''strong buy'' is maybe worth a look, a ''buy'' is a neutral, and ''hold'' means to take the kids' college savings and run for the exits. But one embarrassing e-mail after another from fallen stars such as Salomon Smith Barney's dot-com guru, Jack Grubman, and others have left even jaded investors holding their noses at the smell.

Investment banking fees are the driver; securities analysts and everyone else need to get on board. Consider the case of Bill Tanner, a $2 million-a-year Boston biotech analyst who says he was fired by SG Cowen Securities Corp. for his stock recommendations that were about as welcome on the investment banking side of the house as your first wife at your second wedding.

Neither side is willing to say much, but the dispute is spelled out in detail in a lawsuit filed by Tanner in Suffolk Superior Court. Like the graphic e-mails and memos between overpaid analysts and their even more overpaid investment banking counterparts that have been so damaging to Citigroup and Credit Suisse First Boston, Tanner's suit against Cowen offers a rare inside look at how Wall Street works and why the game as it is now played must be fixed.

Cowen, part of the corporate and investment banking arm of Societe Generale Group, is based in New York, but has about a third of its 75 securities analysts in Boston. It is well regarded for its research, particularly in technology and health care. Tanner was an often-quoted biotech analyst, but as he tells the story in court papers, he learned soon enough who had the muscle at Cowen.

According to Tanner's suit, he and another biotech analyst, Eric Schmidt, ''were required to gain approval'' from investment banking for any proposed ratings changes in biotech stocks. Last December, for instance, Tanner says he recommended downgrading Genzyme Inc. in Cambridge from ''strong buy'' to ''buy,'' based on ''irrefutable evidence'' that the stock was overvalued. Genzyme was one of Cowen's oldest investment banking clients, and Cowen was then talking with the company about new business, Tanner says. Peter Reikes, Cowen's head of health-care investment banking, blocked the downgrade until the end of January, Tanner's suit says. Genzyme's stock fell from about $60 to about $47 in that period, eventually bottoming out at $17.

In another case, the investment bankers were ''very upset'' about a report he wrote in February about impending negative data for a drug being developed by California-based Protein Design Labs Inc., another Cowen investment banking client. The stock has since fallen from about $20 to under $10.

Tanner says he was fired in May by Kim Fennebresque, Cowen's chief executive. Fennebresque later discouraged Banc of America Securities from hiring Tanner as an analyst, a job that would have paid $4 million over the next 18 months, Tanner's suit says. Tanner is now an analyst at Leerink Swann & Co., a Boston investment firm specializing in health care.

''Bill Tanner's sterling credibility as a top-notch biotech analyst was threatened by wrongful behavior that we now realize was pervasive in some areas of the securities industry,'' said Joseph C. Freeman, Tanner's co-counsel, along with Newton attorney Judith A. Miller. ''Beyond that, the facts in the complaint speak for themselves.''

In a court filing, Cowen says both sides have agreed to arbitration. Said Cowen spokesman James Galvin: ''Research is independent at SG Cowen, and the firm has always maintained the highest standards. Mr. Tanner's allegations are without merit and/or substance.''

A jury may yet have to decide the case of Tanner v. SG Cowen. But in the world beyond, Wall Street has already been charged, tried, and convicted of manufacturing whatever garbage it takes to keep the investment fees rolling in.

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