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CSFB Could Face Criminal Prosecution

Sep 20, 2002 | USA Today

State securities regulators in Massachusetts on Thursday referred their investigation into Credit Suisse First Boston to the New York attorney general for criminal prosecution.

Regulators in Massachusetts say they have uncovered numerous e-mails that show how stock analysts at CSFB tried to pump up Internet stock prices in an effort to attract investment-banking business.

''I see a continuing pattern of deceit,'' says William Galvin, Massachusetts' secretary of state and chief securities regulator. ''These e-mails indicate the firm had two sets of books, one they used for themselves that said, 'Don't buy (the stock),' and the other that said, 'Go ahead and buy it,' as they snickered, 'You fool.' ''

In one e-mail, reported Thursday in USA TODAY, one analyst suggested another analyst do the '' 'Agilent Two-Step.' That's where in writing you have a buy rating (on a stock) . . . but verbally everyone knows your position.'' The e-mail was also sent to Elliott Rogers, head of technology research, who in 1999 initiated research coverage on Agilent with a ''buy'' rating.

Such tainted research is not only a breach of fiduciary duty, Galvin said, but may also be commercial corruption and therefore a crime.

Galvin said Thursday that he will continue his investigation into CSFB, which is part of a 42-state effort, but can bring only civil charges. New York's attorney general can file criminal charges under the state's Martin Act. A spokeswoman for New York Attorney General Eliot Spitzer said Thursday that Spitzer is reviewing the evidence from Galvin.

CSFB issued a statement saying it was confident Spitzer ''will determine that a criminal proceeding is not warranted here.'' The firm also said it has made many changes to strengthen analysts' independence and it believes ''these reforms will help restore investor and consumer confidence.''

In May, Merrill Lynch agreed to pay $100 million to settle civil charges filed by Spitzer, who also claimed the firm's Internet analysts recommended stocks they didn't like to protect or attract investment-banking clients.

Spitzer currently is investigating the stock research practices at Salomon Smith Barney and Morgan Stanley. State securities regulators in Utah are looking into the practices of Goldman Sachs, while Texas is heading the team scrutinizing J.P Morgan Chase. Alabama is overseeing the probe of Lehman Bros.

In January, CSFB paid $100 million to settle charges brought by the Securities and Exchange Commission and the National Association of Securities Dealers, which claimed that the investment bank took kickbacks in the form of higher commissions from large investors who got new shares in hot Internet firms.

Last month, the NASD also fined and suspended two executives and four brokers for their roles in the scheme.

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