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Senators Urge SEC to Hold Bank Executives Accountable

May 7, 2003 | Bloomberg

Top executives of Wall Street securities firms, including chief executive officers, must be held personally accountable for biased stock research that misled investors, senior U.S. senators said.

At a hearing on last week's $1.4 billion settlement with Citigroup Inc. and nine other securities firms, Senate Banking Committee Chairman Richard Shelby and other senators told securities regulators today that the agreement's record fines and structural changes didn't go far enough.

``Without holding executives and CEOs personally accountable for the wrongdoing that occurred under their watch, I do not believe that Wall Street will change its ways or investor confidence will be restored,'' the Alabama Republican said.

The SEC has criticized Citigroup CEO Sanford Weill and Morgan Stanley CEO Philip Purcell for their roles in the analyst-conflict issue. While senators didn't accuse any Wall Street executives by name, the committee's comments may add to pressure on the SEC to bring action against bank supervisors.

Securities and Exchange Commission Chairman William Donaldson pledged to ``double our efforts'' and focus the continuing SEC investigation on the ``supervisory chain of command'' at the securities firms.

Being Vigilant

``We're going to be vigilant,'' Donaldson told the Senate Banking Committee. ``Where somebody crosses over the line we will act quickly and decisively to bring that person to justice.''

Weill and Purcell didn't return phone calls seeking comment on today's hearing.

The 10 securities firms agreed to pay $1.4 billion to settle charges that their analysts published misleading stock research in a bid to win investment-banking business. The settlement was the biggest in history for violating securities laws.

Senator Paul Sarbanes, the committee's ranking Democrat who co-sponsored last year's Sarbanes-Oxley corporate-governance law, said Wall Street conflicts of interest were widespread, ``not a matter of a few bad actors.''

Sarbanes of Maryland also criticized the securities industry regulators for missing ``for so long the supervisory problems'' at the firms.

Spitzer Testimony

New York Attorney General Eliot Spitzer, who launched the probe of Wall Street's conflicts of interest, said investigations continue into individuals responsible for the biased research.

``I do not wish to imply that individual wrongdoers have not been or will not be held responsible for their actions,'' Spitzer said. ``We simply first had to remove some of the systemic flaws that enabled improper conduct to flourish.''

Shelby pressed the SEC's enforcement division to speed up its investigation and bring charges against supervisors at the firms. Speaking of the SEC's continuing investigation last week, Stephen Cutler, the SEC's enforcement director, said ``just wait,'' Shelby recalled.

``Although I understand the need to act deliberately to develop evidence, we cannot wait too long,'' Shelby said.

Shelby said ``the firms are not contrite'' and he made reference to a speech last week by Purcell, in which he told a group of investors that there was nothing in the settlement ``that will concern the retail investor about Morgan Stanley.''

Purcell apologized for the remarks after being scolded by Donaldson for ``a troubling lack of contrition.''

Citigroup Settlement

In last week's settlement, the SEC said Citigroup's Weill asked analyst Jack Grubman to reconsider his rating of firm client AT&T. The settlement barred Weill from speaking directly with the firm's analysts in the future. Citigroup, the world's biggest financial services company, paid $400 million, the largest sum, to settle the charges. Weill apologized for the firm's conduct.

Spitzer told the senators that Congress also could have done more to stop the problems on Wall Street.

``You should have listened a few years ago when folks came up here and said there was a problem,'' Spitzer said.

Senator Jon Corzine, a New Jersey Democrat, cited his previous job as co-chairman of Goldman Sachs Group Inc., which paid $110 million as part of the settlement.

``Regrettably, firms and individuals in the investment industry, including one that I'll note I was a member of for 30 years as well, allowed themselves to step on the slippery slope of exuberance,'' Corzine said

New York Stock Exchange Chairman Richard Grasso, Maine securities regulator Christine Bruenn and Robert Glauber, chairman of the National Association of Securities Dealers, are also testifying at today's hearings.

The 10 firms in the Wall Street settlement are Citigroup; Goldman Sachs; Morgan Stanley; Credit Suisse First Boston; Merrill Lynch & Co.; Lehman Brothers Holdings Inc.; J.P. Morgan Chase & Co.; Bear Stearns Cos.; UBS Warburg; and U.S. Bancorp Piper Jaffray.

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