Brokerage Exec’s Comments Draw Rebuke From SEC Chief
‘Disturbing’ remarks seemed to downplay firm’s misconductMay 2, 2003 | AP The nation’s chief securities regulator lashed out at the head of Morgan Stanley, one of the Wall Street firms in a $1.4 billion settlement with the government, for suggesting his firm’s conduct didn’t harm ordinary investors.
In a letter dated Wednesday, Securities and Exchange Commission Chairman William Donaldson accused Philip Purcell of showing "a troubling lack of contrition." It was an unusual public airing of an SEC chairman’s complaint against the leader of a major brokerage firm.
Mr. Purcell, the investment firm’s chairman and chief executive officer, told a financial conference in New York Tuesday: "I don’t see anything in the settlement that will concern the retail investor about Morgan Stanley."
His remarks, as reported by The New York Times, prompted Mr. Donaldson to tell Mr. Purcell he was "deeply troubled." The comments "reflect a disturbing and misguided perspective on Morgan Stanley’s alleged misconduct," Mr. Donaldson wrote, calling regulators’ allegations "extremely serious."
Morgan Stanley is paying $125 million in penalties, compensation to investors and funding for independent research under the settlement resolving state and federal regulators’ allegations that 10 big firms misled investors by issuing biased ratings on stocks to lure investment-banking business. The SEC announced its approval of the deal Monday.
Mr. Purcell, taking questions after his remarks, appeared to contradict the regulators’ findings that Morgan Stanley had failed to disclose to investors that it had paid $2.7 million to other Wall Street firms to publish research on companies whose shares Morgan Stanley had underwritten.
The regulators found that Morgan Stanley failed to manage conflicts of interests between its investment banking and research divisions and failed to properly supervise senior researchers including one-time star telecommunications analyst Mary Meeker.
Mr. Donaldson curtly reminded Mr. Purcell in the letter that under the terms of the settlement, the firms are not allowed to deny the allegations.
The firms agreed to neither admit nor deny allegations that they misled investors. The airing of the federal and state regulators’ allegations could open the way for a flurry of private lawsuits against the firms which also include Merrill Lynch, Citigroup’s brokerage business Salomon Smith Barney and J.P. Morgan Chase by investors who believe they were cheated.
Mr. Purcell responded with a conciliatory-toned letter on Thursday, telling Mr. Donaldson: "I deeply regret any public impression that the (SEC’s complaint against Morgan Stanley) was not a matter of concern to retail investors. Morgan Stanley views seriously the allegations."
Mr. Purcell also assured Mr. Donaldson that no one at the firm would violate the prohibition against denying the allegations.