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Spitzer ‘Trade-off’ As Deal Expected

Dec 20, 2002 | Newsday

Amid signs that a global settlement of conflict-of-interest charges against Wall Street could be announced today, New York State Attorney General Eliot Spitzer, who spearheaded the case, said that to get the deal done, he may forego filing criminal charges against some individuals.

An announcement is expected this afternoon on an accord to end months of investigations into whether Wall Street analysts misled investors with biased stock research. The probes were triggered by Spitzer's release of e-mails in April showing that Merrill Lynch analysts gave "buy" ratings to stocks they disliked in order to win customers for that firm's investment banking unit.

On Wednesday night, Spitzer told talk-show host Charlie Rose that in order to achieve the "systemic structural reform" on Wall Street that he believes is crucial, "we have probably foregone the opportunity to send a few people to jail."

Media reports have speculated that Spitzer will not prosecute Citigroup chief executive Sandy Weill, even though Weill has publicly admitted suggesting that one-time telecom analyst Jack Grubman take a "fresh look" at his low rating on the stock of AT&T Corp.

"That's a trade-off," Spitzer said of his decision to not prosecute some individuals. "Some will agree with it. Some will disagree with it."

Spitzer's office declined to comment yesterday when asked to clarify his statements.

The settlement Spitzer reached with Merrill Lynch in May dropped possible charges against that company and a number of individuals including Henry Blodget, Merrill's former chief of Internet research.

John Coffee, a securities law professor at Columbia University, said that the Securities and Exchange Commission and Spitzer's office may do the same for all firms who sign the so-called global settlement and the firms' employees. But that wouldn't stop the U.S. Justice Department from bringing charges in some of the more egregious cases of biased research, Coffee said.

If a multi-firm settlement occurs, major Wall Street firms may have to collectively pay $1 billion or more in penalties to the state and federal entities involved in the talks. They also may have to fund independent research that will be available whenever their own analysts issue reports on stocks the firm underwrites.

The agreement also is expected to separate stock analysts from investment banking in terms of oversight and pay. And Spitzer has said it will prohibit the practice of "spinning" lucrative shares in initial public offerings to corporate executives with whom an investment bank hopes to do business.

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