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Regulators At Odds On Wall St. Talks

Nov 27, 2002 | Washington Post

Tensions deepened within the coalition of state and federal officials trying to hammer out a global settlement of Wall Street conflicts of interest, as three more investment banks learned today the size of the fines they would be expected to pay.

UBS AG was asked to pay $75 million while J.P. Morgan Chase & Co. and Morgan Stanley were asked to pay about $50 million, sources said. The suggested fines are on the low end of the range of penalties being proposed for the dozen firms being investigated.

But efforts to complete the settlement were complicated by regulators from California and Massachusetts, who threatened to take their cases against big Wall Street firms to court. California officials contend that the fines are too small, and Massachusetts regulators think that at least one firm isn't doing enough to correct its practices.

New York state Attorney General Eliot L. Spitzer; the Securities and Exchange Commission; NASD, the securities industry's principal self-regulatory body; and regulators in several other states are pursuing allegations that Wall Street firms misled investors during the stock boom of the 1990s. .

The investigations have embarrassed Wall Street, which wants a settlement that would bring all the probes to an end. Citigroup Inc. is being asked to pay $500 million to settle allegations against its Salomon Smith Barney unit. Credit Suisse First Boston Corp. has been asked to pay $250 million. Merrill Lynch & Co. earlier agreed to pay $100 million to settle conflict of interest allegations and will not be asked to pay more.

E-mails describing questionable business practices at three of those firms have been made public. Similar e-mails have not emerged from J.P. Morgan, Morgan Stanley or UBS. But in private meetings today, regulators presented each firm with the evidence compiled against it.

The fact that the fine proposed for UBS is higher than the others may indicate that regulators believe they have more compelling evidence against the firm. Representatives of the three firms and the regulators involved in the talks declined comment.

California, meanwhile, is investigating Deutsche Bank and Thomas Weisel Partners LLC. Massachusetts is probing Credit Suisse.

Demetrios A. Boutris, California's corporations commissioner, today reiterated his state's position that Deutsche Bank should pay $100 million rather than the $50 million suggested by some other regulators. And he said Thomas Weisel Partners, a far smaller firm facing financial difficulty, should also face a sizable fine regardless of its ability to pay.

Other regulators have complained about California's stance, contending that investigators from the state said in a recent meeting that evidence "doesn't matter" and that other firms under investigation should all pay at least as much as Merrill Lynch regardless of evidence. Spitzer, however, supports the current fine proposals, a source familiar with his thinking said.

A California official today said the state does have compelling evidence against both firms. The official also said the state has evidence indicating that Deutsche Bank deleted potentially damaging e-mails. A spokeswoman for Deutsche Bank did not return a call for comment. A spokeswoman for Thomas Weisel Partners has said the firm does not think it should have to pay a large fine.

A Massachusetts official said today that Credit Suisse's response to a lawsuit filed by the state against the firm indicated that the dispute may end up in court rather than being resolved in the global settlement. "It's clear they want a fight, and they are going to get one," the official said.

Credit Suisse filed its response Monday. A spokeswoman said today that the firm still wants to be part of the global settlement and has taken significant steps to eliminate conflicts of interest and improve internal oversight.


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