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Massachusetts Officials Urge New York Attorney General To Charge CSFB

Sep 19, 2002 | The Wall Street Journal

The office of New York State Attorney General Eliot Spitzer has received a criminal referral from Massachusetts securities regulators recommending that Mr. Spitzer file criminal charges against Credit Suisse First Boston over the firm's research coverage, according to a spokesman for the office.

The referral involves an investigation by Massachusetts Secretary of State William Galvin, which has focused on e-mails and other evidence showing Credit Suisse First Boston research analysts felt pressured to avoid writing negative stock evaluations on current or prospective investment-banking clients of the firm.

A spokesman for Mr. Spitzer says the office "needs to consult with the Massachusetts authorities and review evidence they've amassed" before making a final decision on what to do. A CSFB spokeswoman had no immediate comment.

In recent days, Mr. Galvin has said that he was considering referring the case against CSFB, a unit of Credit Suisse Group , to criminal prosecutors. Mr. Galvin referred the case to the New York attorney general, who under a New York state law known as the Martin Act, has vast powers to charge individuals or Wall Street firms with criminal wrongdoing.

Of course, Mr. Spitzer may not follow through and bring criminal charges against CSFB or executives there. Earlier in the year in his case against Merrill Lynch & Co. , and its former Internet analyst Henry Blodget, Mr. Spitzer considered criminal charges but ultimately pursued a civil case, and he may do the same here, say people close to the matter.

But the referral is significant. The Massachusetts probe part of a broad investigation into whether Wall Street firms deceived investors by hyping stocks of companies that were investment-banking customers is one of numerous state probes on Wall Street abuses. Mr. Spitzer won a $100 million settlement from Merrill Lynch in May, following his investigation into the firm's research. The New York Attorney General is now investigating Salomon Smith Barney's research.

In pursuing the investigation, Massachusetts officials have reviewed more than 80,000 e-mails and other documents delivered under subpoena and have taken depositions from former CSFB employees, a person with knowledge of the matter said. The criminal referral could cover both the firm and executives at the firm, this person said.

In addition to indicating potential conflicts involving research reports, CSFB e-mails also show a link between analysts' compensation and the amount of investment-banking business they worked on. Regulators believe the arrangement may have compromised the independence of some analysts' research, according to this person.

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