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Wall St. Firms Looking To Trim Fines

Nov 28, 2002 | New York Daily News Let the real negotiations begin.

For the next few weeks, a dozen investment banks, including Goldman Sachs and Morgan Stanley, will likely offer less than the $50 million to $500 million in fines for offering tainted investment advice regulators recently proposed.

The regulators, including state attorneys general from New York and Massachusetts and the Securities and Exchange Commission, will listen to the banks' arguments.

They could be persuaded to reduce the penalties, especially if the firms offer olive branches in the form of investor education programs, among other sweeteners.

As the meetings progress, the regulators and banks are likely to make both public and private arguments about the severity of the sins and the size of the fines that should result.

The penalty discussions follow a month of joint meetings with Securities and Exchange Commission enforcement chief Stephen Cutler and state Attorney General Eliot Spitzer with a goal of preventing a range of sins that have marked their past conduct.

Analysts, for example, hyped the stocks of investment banking clients to win stock or mergers business.

Some firms also distributed hot new stocks to top execs, which also may have helped them win business.

Depending on the way the individual money talks play out, sources said, some of the banks may not return to the global settlement talks, when they resume around Dec. 11.

Any firm that dropped out of the global settlement talks could face more probes from federal or state regulators.

Massachusetts Attorney General William Galvin continues to prepare his case against Credit Suisse First Boston.

Regulators asked CSFB to pay $250 million, the second-highest fine, behind Citigroup's $500 million.

Galvin disclosed through several E-mails, which have become the smoking gun for many of these probes, the link between research and investment banking.

In one set of E-mails, a CSFB banker advises an analyst who is considering putting a "sell" rating on Yahoo after a profit warning to "keep it at a hold."

That same banker then describes the analyst as "partner."

CSFB declined to comment on the E-mails.

Sources said the probe of CSFB will inevitably lead to questions about the role of star banker Frank Quattrone.

CSFB said it is "strongly committed to this ongoing process, which we believe is the best way to achieve effective, industry-wide reform."

If CSFB and the other banks move to the next round, they're likely to continue their discussions about the kinds of issues that analysts and investment bankers can discuss among themselves within their firms.

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