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Spitzer Asked To Step Into Credit Suisse Probe

Sep 19, 2002 | First it was Merrill Lynch Now it could be Credit Suisse First Boston that gets to feel the wrath of Eliot Spitzer the New York attorney general and Wall Street dragon slayer.

Massachusetts securities regulators, who have been looking into potential conflicts of interest between analysts and investment bankers at CSFB, are asking Spitzer's office to assist them in pursuing possible criminal or civil charges against the Wall Street firm.

The Massachusetts authorities made their request in a letter delivered to Spitzer's office on Thursday, according to Darren Dopp, a Spitzer spokesman.

"It's a request and authorization for further investigation," says Dopp, who adds that Massachusetts's regulators say they have uncovered evidence of possible violations of law at CSFB.

Dopp says Spitzer's office was asked to join the investigation because it may be easier to pursue either civil or criminal charges under New York law -- which has broader definition of securities fraud than either federal or Massachusetts law.

It's way too early, however, to say what may come of the request. Dopp says Spitzer's office has not yet reviewed any of the evidence gathered by Massachusetts authorities. The letter did not identify whether any individuals at CSFB might be the subjects of possible charges.

Over the past few weeks, Massachusetts regulators have released a number of internal CSFB email messages that seem to show that some CSFB analysts felt pressured by investment bankers to issue positive recommendations on certain stocks.

Even if Spitzer's office does decide to work with Massachusetts, there's no guarantee that a criminal charge against the firm will be forthcoming.

In pursuing a similar investigation against Merrill, Spitzer's office opted to settle with the firm rather than pursue criminal charges. That settlement, which has been ratified by all but a handful of states, requires Merrill to pay a $100 million fine. The settlement also requires Merrill to institute a number policies that seek to prevent investment bankers from interfering with the job done by research analysts.

Spitzer's investigation prompted a joint effort by other state securities regulators to see whether similar conflicts between investment bankers and analysts exist at other Wall Street firms. Massachusetts authorities were tapped to lead the investigation into CSFB.

CSFB, in a prepared statement, said it will "cooperate fully" with Spitzer's review of the allegations raised by Massachusetts regulators. The firm also said it is "confident that after doing so he will determine that a criminal proceeding is not warranted here." Massachusetts authorities were unavailable for comment.

Meanwhile, in an unrelated move, Credit Suisse Group, the parent company of CSFB, named John Mack and Oswald Gruebel as co-chief executives to replace Chief Executive Officer Lukas Muehlemann. Mack had been the head of CSFB.

Also, CSFB and Goldman Sachs were scheduled today to deliver information to a congressional panel about their policies on allocating shares in hot initial public offerings. The House Financial Services Committee had given both investment banks until 5 p.m. Thursday to produce the information.

The House committee has been looking into whether investment banks have doled out shares in hot IPOs to corporate executives as part of an incentive program to win corporate investment banking work.

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