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Wall Street Firms Prepare To Pay Fines For Biased Research

Jan 17, 2003 | New York Daily News Top Wall Street firms may have to take out their checkbooks as early as next month to pay some of the $1.4 billion in fines for their biased research.

The firms also are looking to finalize terms of a settlement designed to protect small investors by the end of February, people familiar with the process said.

The banks, including Citigroup and Merrill Lynch, agreed to the payments in December, after state Attorney General Eliot Spitzer and the Securities and Exchange Commission revealed E-mails that showed analysts hyped stocks of investment banking clients.

The banks' fines depended on the severity of their violations. Citigroup, which employed telecom analyst Jack Grubman, got the stiffest fine $400 million.

So far, Merrill Lynch is the only firm to cough up money $100 million after probes showed some analysts publicly supported stocks they privately criticized.

Citigroup, J.P. Morgan Chase and Lehman Brothers have already set aside money to pay the fines. Each also has agreed to hire an ombudsmen who will ensure that investors receive independent stock opinions alongside the bank's own research.

The firms have agreed to limit the ombudsmans' connection to the firms, to prevent them from having too close a vested interest in the banks' profits.

Regulators are expected to provide some findings from their probes this month, which will help arm investors pursuing legal action against the banks. A plaintiff's lawyer estimated Merrill and Citigroup will have to pay $30 million to settle conflict of interest charges.

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