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Massachusetts Goes After CSFB Over Stock Reports

Oct 22, 2002 | Wall Street Journal

Some Credit Suisse First Boston stock-research analysts had an internal code to describe which stocks to avoid, but there was one problem: They didn't let all investors in on the secret, Tuesday's Wall Street Journal reported.

That is one of the allegations made Monday by Massachusetts state securities regulators, in the latest set of claims that Wall Street analysts issued overly rosy research reports to win lucrative investment-banking business.

William Galvin, secretary of the Commonwealth of Massachusetts, filed an administrative complaint against the big securities firm, owned by Credit Suisse Group (CSR). The complaint alleges CSFB misled investors by allowing its investment-banking division in particular, star Frank Quattrone to exert undue influence on the firm's research department.

In the complaint, Massachusetts accused CSFB of routinely trashing stocks privately while publicly recommending them to investors, and of allowing investment bankers to control almost every aspect of the research process. Moreover, Mr. Galvin alleges the firm bribed clients with allocations of hot initial public offerings in an attempt to win investment-banking business.

CSFB said in a prepared statement that Mr. Galvin's complaint was "riddled with misleading statements and inaccuracies" and that his office took out of context a handful of statements from among millions of pages of documents the firm provided. Mr. Quattrone and Mr. Mahon, through a company spokeswoman, declined to comment.

The complaint, which echoes one filed earlier this year by New York Attorney General Eliot Spitzer against Merrill Lynch & Co., will no doubt add to investor concern that Wall Street peddled research it didn't believe only to get its hands on the much more lucrative investment-banking fees. In May, Merrill agreed to pay a $100 million penalty and change how it monitors and pays its stock analysts to settle the allegations against it.

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