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CSFB Stock Reports May Have Broken Law, Mass. Officials Say

Sep 20, 2002 | The Washington Post

Credit Suisse First Boston Corp. may have violated criminal statutes by issuing misleading stock research reports, and New York state Attorney General Eliot Spitzer should consider filing charges, Massachusetts regulators have recommended.

Massachusetts has been investigating CSFB, the U.S. investment-banking arm of Zurich-based Credit Suisse Group, as part of a multi-state probe into possible conflicts of interest at Wall Street firms.

Investigators are looking into whether analysts wrote overly positive reports on troubled firms that later collapsed, costing investors millions of dollars, to generate lucrative investment-banking fees.

An official in Spitzer's office today confirmed receipt of the letter from Massachusetts but said no decision has been made on how to proceed.

"Credit Suisse First Boston welcomes and will cooperate fully with any examination of this matter by Attorney General Spitzer," the firm said in a prepared statement released tonight. "The Attorney General said he would review this matter, and we are confident that after doing so he will determine that a criminal proceeding is not warranted here."

Massachusetts Secretary of State William Galvin, who is leading his state's inquiry, has internal e-mails showing that CSFB analysts felt pressured to write positive report on firms that were also investment-banking clients, according to an official in his office. Galvin has also reviewed e-mails suggesting that analysts' pay was linked to the investment-banking revenue they helped produce.

Spitzer's office brought the issue of analyst independence to national attention this spring by releasing Merrill Lynch & Co. e-mails in which analysts disparaged stocks of investment-banking clients that they were publicly recommending.

Spitzer considered filing criminal charges against Merrill Lynch but instead settled for a $100 million fine and changes in Merrill's research practices.

A Massachusetts official today said the state could still file civil charges against CSFB for misleading investors with overly bullish research reports. But the official said it would be better for the New York attorney general to file any criminal charges because of the state's tough banking law, known as the Martin Act.

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