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Officials Might Yet Decide To Pursue Charges

Dec 20, 2002 |

Wall Street's leading investment banks breathed a collective sigh of relief on Friday after settling investigations into conflicts of interest. But, for many individuals, the tense times have only just begun.

Regulators have hinted throughout the investigation that they may bring civil or criminal charges against individuals after they wrapped up the settlement talks with the banks.

The Massachusetts secretary of state has referred evidence to prosecutors against Frank Quattrone, head of Credit Suisse First Boston's technology investment banking group.

Another potential target whose name has surfaced during the investigations is Jack Grubman, former telecommunications analyst at Citigroup's Salomon Smith Barney unit.

Mr Grubman's case will weigh heavily on Sandy Weill, Citigroup chairman and chief executive, who has been forced to acknowledge that he asked Mr Grubman to take a "fresh look" at AT&T months before Salomon won a big underwriting assignment from the telecoms company.

In addition, lesser-known figures may also come into prosecutors' sights after the regulators release evidence compiled in their investigation. This "record of finding" is expected to be made public in January.

"It's going to depend on how egregious the misconduct was. You really have to see what the documents say," said Marvin Pickholz, a securities lawyer and former assistant director of e nforcement at the SEC.

Authorities have sent mixed signals. Eliot Spitzer, New York state attorney-general, said last week he would not seek charges against individuals as part of the global settlement.

But that does not preclude future action by Mr Spitzer or federal regulators. Larry Thompson, US deputy attorney-general, recently signalled that his office would step up its their pr osecution of corporate criminals.

There are reasons to believe regulators will follow through on their threats. "I wouldn't be surprised if they decide to make an example out of somebody," said Michael Bachner, a secu rities lawyer in New York.

On the other hand, there are indications some regulators are worn out after a year of legal wrestling.

Andre Pineda, deputy director of the California department of corporations, told the Financial Times last week that other state authorities "want to move on".

Embattled bankers can also take heart from the fact that no charges have yet been filed against Henry Blodget, the former internet analyst, whose firm, Merrill Lynch, cut a deal with Mr Spitzer in May.

However, investigators have revealed some clues as to what they have learned of the conduct of individuals.

In a complaint filed against CSFB in October, Massachusetts said analysts in Mr Quattrone's tech group offered overly flattering research to companies in exchange for investment banki ng business. It They also accused the group of handing initial public offerings to senior executives for the same purpose. a practice known as "spinning".

"Quattrone knew, or should have known," one investigator concluded.

Meanwhile, Mr Grubman is also dealing with a separate civil complaint against him by the National Association of Securities Dealers for allegedly misleading investors.

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