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Five Wall Street Firms Fined $8M

Dec 3, 2002 | BBC

Five Wall Street brokerages have been fined $8.25m (£5.3m) for failing to properly maintain e-mail records.

The sanctions follow an unusual alliance among three stockmarket regulators.

The fined firms: Citigroup, Deutsche Bank, Goldman Sachs, Morgan Stanley and US Bancorp Piper Jaffray agreed to the penalties without admitting or denying any wrongdoing.

Each firm will pay $1.65m, US regulators said, announcing the sanctions on Tuesday.

"Each firm had inadequate procedures and systems to retain and make accessible e-mail communications," the Securities and Exchange Commission (SEC), New York Stock Exchange and NASD said in a joint statement.

"While some firms relied on employees to preserve their copies of the e-mail communications on the hard drives of their individual personal computers, there were no systems or procedures to ensure that employees did so."

Cyber sleuthing

Regulators said reliance on employees to maintain e-mail records led to many of them being destroyed.

The regulatory agencies said some of the firms named in Tuesday's action made back-up copies but then discarded or recorded over copies.

As part of the agreement, the companies must submit a scheme to regulators within 90 days to preserve future electronic communications.

Federal and state regulatory officials have been meeting with lawyers from top investment banks for weeks now to determine the amount of penalties to be paid by each firm.

Officials from the New York state attorney general's office and the SEC have accused Wall Street brokerages of issuing glowing reports on firms they privately disparaged.

Investigators used e-mails to prove their claims.

Settlement deal

Regulators, led by Mr Spitzer, have been keen to sever research divisions from banking divisions legally as a way to prevent analyst conflicts of interest.

The banking industry has baulked, saying research is not profitable enough to be a stand-alone business.

In recent days, investigators have softened their stance, now opting to separate the two functions within a single organisation.

As part of the settlement, investment banks may be required to include at least three independent research reports in addition to the one issued by the investment bank.

In addition, brokerage firms are expected to fund independent research, conducted by companies with no investment-banking operations.

The negotiations have also included talks about how to avoid future conflicts of interest, when analysts work closely with bankers to gain lucrative investment banking business from clients.

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