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Probe Settlement Closer?

Regulators, Brokerages Push To Negotiate Wall Street Fines

Dec 18, 2002 | Newsday Negotiators may reach a settlement as soon as tomorrow to end state and federal investigations of Wall Street brokerage-house research practices, a source familiar with the talks said.

Last month, regulators met with the firms and proposed fines ranging from $50 million for companies such as J.P. Morgan Chase to $500 million for Citigroup over allegations that the brokerage houses provided biased research to cater to investment bank interests.

Many of the firms have asked that their penalties be lowered, in some cases to as little as $15 million. But several state regulators, including those representing Alabama and California, have opposed any reductions.

Now, however, regulators are making an extra push to settle this week. One source said that New York Attorney General Eliot Spitzer is trying to prevent some states from breaking away from the global agreement even if it means lowering the fines.

But other sources cautioned yesterday that the situation could change rapidly and progress in the talks could fall apart.

Originally, regulators including the Securities and Exchange Commission proposed making the firms pay a collective $1.3 billion in fines. The new amounts firms proposed last week could bring down the total payout by $600 million or more.

Still, Lance Myers, senior counsel at Holland & Knight LLP, who has been following the talks, said, "I think the states have the upper hand. If anything, they'll be going for higher numbers, not lower."

Separately, Michael G. Oxley, House financial services committee chairman from Ohio, yesterday called for all fines to be put into a restitution fund. Currently, the fines would be split 50-50 among federal agencies and the states, with no promise of restitution.

"Once the global settlement is in place, the acid test of its success will be whether it returns money to the investors who lost money as a result of biased research," Oxley said. "It should not be a Christmas gift for state treasuries."

In addition to the fines, the settlement is likely to include structural reforms to ensure analysts are not influenced by the millions in investment banking fees their firms generate from the companies they cover.

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