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Wall St. Probers Unite Vs. Abuses

Oct 3, 2002 | AP

The U.S. Government's top securities watchdog, New York state's attorney general and other regulators on Thursday pledged to work together to stem abuses and conflicts of interest at big Wall Street firms that have rattled investors' confidence.

Harvey Pitt, chairman of the Securities and Exchange Commission, and Eliot Spitzer, the New York attorney general, said they planned to come up with a common plan in the next few weeks to investigate and punish abuses by investment firms such as conflicts of interest among analysts and unfair distribution of hot new stocks by the firms.

The regulators' move came as congressional investigators made public their findings that Wall Street firm Goldman Sachs offered shares of new stocks to executives of at least 20 companies whose companies had steered lucrative investment-banking business to the firm.

In recent months, the SEC and Spitzer have been investigating conflicts of interest and other abuses at several big investment firms and have appeared at times to be competing with each other. Spitzer has been especially aggressive: This week he filed a civil lawsuit against five former and current telecommunications executives, accusing them of steering investment business to Wall Street powerhouse Salomon Smith Barney in exchange for access to new stocks that they later sold for millions.

And in May, Merrill Lynch & Co., the nation's largest brokerage firm, agreed in a settlement with Spitzer's office to pay a $100 million fine and to separate its analysts from its lucrative investment-banking business to avoid future conflicts of interest.

The National Association of Securities Dealers, which polices the brokerage industry, the New York Stock Exchange and state securities regulators also have been pursuing related investigations.

In a statement, the SEC, Spitzer's office and the other securities regulators announced "a joint effort to bring to a speedy and coordinated conclusion the various investigations concerning analyst research and IPO allocations."

"Swift and appropriate resolution of these investigations will protect investors and help enhance investor confidence in the marketplace," the statement said.

The regulators said they planned to present proposed resolutions to the investment firms under investigation and to give them "a brief opportunity" to work out settlements. They also said they may propose new industrywide rules and reforms.

Spitzer has not said publicly what firms are under investigation by his office and other regulators. But a source familiar with the cases said in June that Spitzer had issued subpoenas for documents to Salomon Smith Barney, Goldman Sachs, Credit Suisse First Boston, Lehman Brothers, Morgan Stanley Dean Witter, Bear Stearns and UBS PaineWebber.

In its IPO investigation, the House Financial Services Committee said Wednesday that executives at two companies that had significant business with Goldman Sachs, Margaret Whitman, chief executive of eBay Inc., and Yahoo Inc. co-founder Jerry Yang each received stock in more than 100 IPOs that Goldman managed since 1996.

They quickly sold many of the shares at a profit, according to information obtained by the committee.

A Goldman spokeswoman did not return calls from The Associated Press. But Goldman spokesman Lucas Van Praag told The New York Times in Thursday's editions that the data was "an egregious distortion of the facts."

"The suggestion that Goldman Sachs was involved in spinning or other inappropriate practices around IPO allocations is simply wrong," Praag said. "Goldman Sachs is not a retail firm, all our individual investors are wealthy. We can find no unfairness or bias in favor of corporate officers or directors over other clients."

Whitman's allocations weren't required to be disclosed, he said.

Whitman also serves as a Goldman director and eBay has paid the company fees. Whitman declined to comment on the issue Wednesday, eBay spokesman Kevin Pursglove said.

Yahoo issued a statement saying, "Yahoo executives who received IPO stock did so through private banking transactions which Yahoo was not involved with."

The House committee is investigating so-called Wall Street "spinning," or the practice of giving corporate executive clients the chance to buy into hot IPOs as a way to win their companies' investment banking business. The committee is probing similar transactions at the investment firms Salomon Smith Barney and Credit Suisse First Boston.

"There is no equity in the equities markets," committee chairman Rep. Michael Oxley, R-Ohio, said in a statement. "I call on every Wall Street firm to show respect for America's individual investors by reforming these corrupt practices immediately."

The panel said that documents it obtained also show the use of financial research to hype companies that were investment banking clients of big firms, the possibly illegal underpricing of IPO shares and other conflicts of interest on the part of Wall Street firms.

Among the company executives who received IPO access were the former heads of Tyco International Ltd., The Inc. and Global Crossing International Ltd. Combined, Tyco and Global Crossing paid Goldman $102 million in banking fees.

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