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Wall St. Probes Feared Counterproductive

Nov 22, 2002 | UPI The New York Stock Exchange stepped up its crackdown Friday on Wall Street brokerages.

Over the next few days, the NYSE will be meeting with some of the Street's biggest investment banks, which have been accused of deliberately misleading investors through biased analysis. It is likely to fine those found guilty.

Earlier this year, after an investigation by New York Attorney General Eliot Spitzer, Merrill Lynch had to pay $100 million for promoting stocks to investors when, in private, members of the firm disparaged the companies concerned.

The current investigation is led by the NYSE and includes the Securities and Exchange Commission, the National Association of Securities Dealers, and Spitzer's office. The investigators are expected to find other banks guilty of misleading practices.

Indeed, Wall Street analysts expect the financial authorities to fine banks at least $1 billion cumulatively, with financial monolith Citigroup being charged around $500 million. The fine for Credit Suisse First Boston is pegged at $200 million, while Goldman Sachs, Morgan Stanley, Lehman Brothers, and Bear Stearns are expected to face penalties of at least $25 million each.

The financial authorities have declined to comment on details of the ongoing discussions, as have the investment banks under investigation. And it's that lack of disclosure that acts as a major obstacle to transparency in the markets, some analysts say.

"More disclosure of the investigations is needed to better understand what the problems are," said Eugene Spector, an attorney at Spector, Gadon & Rosen, specializing in financial regulation.

"There will be a more accurate understanding," he added.

There is growing concern that the latest effort to prevent brokerages from hyping shares to trusting investors could actually reduce transparency in the financial markets.

On Friday, Prudential Securities said that its analysts would no longer be permitted to speak to reporters seeking comments.

The move, it said, was meant to make its research proprietary, available only to paying clients. That's expected to improve integrity, reducing the tendency to talk up certain companies.

But if that move is broadly copied, it could also mean less information for individual investors.

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