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Securities Firms Ask Regulators to Lower Fines

Dec 10, 2002 | Wall Street Journal Wall Street firms are pressing securities regulators to reduce the level of fines they will pay as part of an agreement to settle allegations that they misled small investors with faulty stock research and they could very well get their way, Tuesday's Wall Street Journal reported.

As talks come to a head this week to craft a so-called global settlement of planned civil charges over research practices during the market bubble of the 1990s, securities firms are making a variety of arguments to persuade regulators to reduce the monetary penalties that are a critical part of the pact. The result could lead to fines for Wall Street, once estimated at more than $1 billion, of $800 million to $900 million, though regulators still expect to get close to $1 billion in fines, according to people close to the inquiry.

The fines represent the last major stumbling block to completing the settlement. Major securities firms already are resigned to paying an additional $1 billion over the next five years to fund the distribution of independent stock research to small investors, and making other changes to their research practices.

Under the plan, analysts will be barred from helping bankers win financings by attending pitch meetings. There also is broad agreement to ban the practice of spinning initial public offerings, in which firms dole out shares of the IPOs to the personal brokerage accounts of corporate executives who have the power of handing out lucrative underwriting assignments and other business to Wall Street firms.

Under the plan, corporate executives in the position of choosing underwriters will be prohibited from getting IPO shares.

For months, regulators, led by New York Attorney General Eliot Spitzer, have said that substantial fines were the cornerstone of any global pact. Mr. Spitzer and Stephen Cutler, the Securities and Exchange Commission (news - web sites) enforcement chief, also are seeking to use part of the money to form a restitution fund for aggrieved investors.

Mr. Spitzer in May won a $100 million fine from Merrill Lynch & Co. to settle charges involving research conflicts after uncovering e-mails from analysts, including the firm's former tech-stock star Henry Blodget, denigrating stocks that received high ratings from the firm. But in recent weeks, several Wall Street firms have made headway in arguing their cases for lower fines, using the Merrill settlement as a benchmark. And regulators appear increasingly to want to close the matter, which has taken a significant amount of resources, before year-end .

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