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Regulators Subpoena Wall Street Executives

Documents Sought In Analyst Probe

Jun 3, 2003 | Washington Post

The Securities and Exchange Commission has subpoenaed chief executives and a host of other top officials at 12 of Wall Street's largest firms, seeking e-mails and other documents in a probe intended to determine whether the executives failed to properly supervise research analysts.

The subpoenas request all incoming and outgoing e-mail traffic over a three-year period from chief executives at the firms as well as officials in the research and investment-banking departments and other officials, sources said.

The subpoenas also request information describing the supervisory structure of the firms, the sources said. Under securities industry rules, failure to properly supervise subordinates can result in sanctions that, in extreme cases, could result in expulsion from the business.

Regulators asked that the information be compiled and submitted by June 20, a tight deadline that had some Wall Street executives frustrated tonight. They were also exasperated that regulators are pushing forward on this new phase of the analyst investigation at a time when investors finally seem to be coming back into the stock market.

The supervisory probe grew out of the $1.4 billion agreement finalized between Wall Street firms and regulators in April settling charges that analysts at the firms misled investors by writing overly bullish research reports intended to generate lucrative investment-banking business.

In addition to subpoenas from the SEC, the firms received information requests from the securities industry's two main self-regulatory bodies, NASD and the New York Stock Exchange, sources said. An NASD spokeswoman declined to comment on the requests. A spokesman for the NYSE could not be reached.

SEC spokesman Herb Perone said: "When the SEC announced the settlement with 10 Wall Street firms back in April, Chairman [William H.] Donaldson and the commission stated that our investigation would continue as to individuals with an emphasis on supervisory issues. We don't intend to discuss the specifics of that investigation. Subpoenas are nothing other than a means of obtaining information. They certainly don't suggest that the commission has reached any conclusion about their subject or that a case is likely to or even could be brought against their recipients."

According to sources, firms receiving the subpoenas include Citigroup Inc., Credit Suisse First Boston, Merrill Lynch & Co., Morgan Stanley, Goldman Sachs Group, Lehman Brothers Holdings, J.P. Morgan Chase, Bear Stearns, UBS Warburg, U.S. Bancorp Piper Jaffray, Thomas Weisel Partners and Deutsche Bank. Thomas Weisel and Deutsche Bank did not take part in the settlement agreement but were part of the research investigation.

Spokesmen at Merrill Lynch, Morgan Stanley, Credit Suisse, J.P. Morgan, U.S. Bancorp, Deutsche Bank and Citigroup declined to comment. Officials at Thomas Weisel, Lehman Brothers, Goldman Sachs, Bear Stearns and UBS Warburg could not be reached.

When the SEC approved the settlement in April, sources said commissioners expressed concern that top executives were not being held accountable for alleged research abuses that hurt individual investors.

One issue that came up in the commission's discussion about the settlement agreement was Citigroup chief executive Sanford I. Weill's role in Salomon Smith Barney's 1999 upgrade of its rating on AT&T Corp.'s stock, sources have said.

Salomon is owned by Citigroup. Shortly after the upgrade, Salomon won a lucrative role in the spinoff of AT&T's wireless unit. Weill acknowledged last year that he asked Jack B. Grubman, Salomon's telecommunications analyst at the time, to take a "fresh look" at AT&T. But he denied ever telling the analyst what to write.

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