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SEC Appears Close to Brokerage Settlement

Apr 28, 2003 | AP

Federal regulators are poised to approve a settlement in which nine brokerage firms, including Wall Street's biggest, will pay $1.4 billion to resolve allegations that they issued biased ratings on stocks to lure investment-banking business.

In closed-door meetings last week, the five members of the Securities and Exchange Commission discussed details of the deal, reached tentatively in December.

It calls for one of the largest penalties ever levied by securities regulators and will change the way major investment firms including Citigroup, Merrill Lynch and J.P. Morgan Chase do business.

In agreeing to the settlement, the firms neither admitted nor denied allegations that they had misled investors, even though authorities uncovered e-mails in which the firms' financial analysts privately derided stocks they were touting to the public.

SEC Chairman William Donaldson, New York Attorney General Eliot Spitzer and other state regulators were presenting the industrywide settlement in final form on Monday.

The SEC's scrutiny comes after a year in which investors' trust was shattered by a series of stunning accounting scandals at big companies, which brought the strictest new anti-fraud law for U.S. corporations since the Depression. And last week saw the arrest of a former star investment banker who personified the go-go environment on Wall Street during the high-tech stock boom.

Federal prosecutors allege that the banker, Frank Quattrone, obstructed justice by directing other employees at Credit Suisse First Boston to destroy evidence. His lawyer says Quattrone is innocent.

Under terms of the tentative settlement, the Wall Street firms would be required to sever the troublesome links between analysts' stock research and investment banking, and to fund independent research for investors that would complement their own analysts' work. In addition to the $1.4 billion in fines, they would pay $450 million over five years for the independent research and $85 million for a nationwide investor education program.

Citigroup's brokerage business, Salomon Smith Barney, would pay the heaviest fine: $300 million. But Citigroup CEO Sanford Weill won a guarantee that he would not be prosecuted.

Credit Suisse First Boston would pay $150 million in the settlement. Goldman Sachs, J.P. Morgan Chase, Bear Stearns, Morgan Stanley, Lehman Brothers, Deutsche Bank and UBS Paine Webber would each pay $50 million.

Last May, Merrill Lynch, the nation's largest brokerage, agreed to a settlement that included a $100 million fine and the separation of its analysts from investment banking.

The amounts were based on evidence collected against the firms, according to officials.


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