Wall Street Firms, Regulators Near Deal
Wall Street Firms Near Deal With Regulators to End Conflicts of InterestDec 19, 2002 | AP A dozen of the nation's largest brokerages and regulators are nearing a settlement aimed at ending conflicts of interests over Wall Street stock research, people familiar with the mattter said Thursday.
The agreement, to be announced Friday, will include fines totaling nearly $1 billion and structural reforms to end conflicts of interest by stock analysts, the sources said on the condition of anonymity.
The fines would be among the largest ever levied by securities regulators. The settlement includes firms such as Citigroup, Goldman Sachs, Credit Suisse and Salomon Smith Barney.
Two of the 12 companies were still negotiating terms of the deal with regulators late Thursday. Those talks were expected to last late into the night, although an afternoon announcement was planned at the New York Stock Exchange even if the two firms did not sign onto the agreement, one of the sources said.
A dozen major brokerages have been meeting in New York City over the last two weeks with representatives of New York Attorney General Eliot Spitzer and Steven Cutler, the enforcement director of the Securities and Exchange Commission.
The SEC and Spitzer's office declined to comment on a possible settlement. Officials at Citigroup and Salomon Smith Barney also declined to comment.
The largest fine is expected to be about $350 million from Citigroup, a regulatory source said.
The settlement also calls for the firms to fund independent stock research for investors to complement their own analysts' work. Spitzer has said that would remove bias from the research and keep the brokerages from inflating their own stock ratings.
The deal also would ban initial public stock offerings to chief executives of companies that have investment banking business with the Wall Street firms.
The biggest progress in the talks came Tuesday when smaller brokerages dropped their effort to lower their fines from a range of $50 million to $75 million, one of the sources said.
The brokerages gave their initial support in October, but squabbles over the fines and which firms would pay how much has held up a so-called global settlement.
Generally, firms would have to provide investors with independent research, funded by the brokerages.
Spitzer has said small investors lost millions of dollars after they were advised to buy stocks that analysts privately derided in order to bolster the stocks' value and lure the companies as investment banking clients.
In May, Merrill Lynch & Co., the nation's largest brokerage firm, agreed to a settlement with Spitzer's office that included a $100 million fine and the separation of its analysts from investment banking. Merrill Lynch also has participated in the recent negotiations.
The National Association of Securities Dealers, which polices the brokerage industry, and the New York Stock Exchange announced in October that they were tightening their rules governing analysts and stock offerings.