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Street Banks Await Fines In Stock-Bias Settlement

Nov 20, 2002 | USA Today Wall Street's largest investment banks expect to find out by early next week how much they will pay in fines as part of a global reform settlement aimed at cleaning up tainted research and stock-offering practices, people close to the situation say.

The fines, which could total more than $1 billion, will likely be earmarked for a restitution fund for small investors who blame Wall Street for their billions of dollars in losses in the stock market meltdown.

After weeks of often tense negotiations with the Securities and Exchange Commission and New York Attorney General Eliot Spitzer, senior executives privately acknowledge they are eager to settle and close one of the most damaging chapters in Wall Street history.

Fines will be based on each firm's size, how many retail investors it serves and how much evidence regulators have found that it used rosy research and hot initial public offering allocations to attract lucrative investment-banking business. Friday, Spitzer is expected to ask Citigroup, the parent of Salomon Smith Barney, to pay a $500 million fine, according to people close to the situation. Merrill Lynch paid $100 million in May to settle with Spitzer.

In a bid to ensure investors get unbiased research, the deal also calls for Wall Street firms to buy independent research and distribute it alongside their analysts' work. Some participants say the industry's cost could exceed another $1 billion over five years, raising fears that Wall Street research could become more scarce and independent reports more costly.

Under the plan, each bank would be responsible for appointing an independent monitor, certified by the SEC, to select the independent research offerings. Firewalls to prevent investment bankers from influencing stock analysts would be strengthened.

Restrictions on IPO allocations are also included. The hope is to outlaw practices such as ''laddering,'' which involves steering IPO shares to investors who agree to buy more shares once trading begins, generally boosting the stock price.

The firms will learn the size of their fines during one-on-one meetings with regulators on Friday, Monday and Tuesday.

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