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Wall Street Settlement Will Come Friday

Dec 19, 2002 | Thestreet.com A much-anticipated deal that would impose hefty fines on a dozen Wall Street investment banks and would overhaul securities-industry business practices will be announced Friday.

Securities regulators said they plan to announce the settlement at a press conference Friday afternoon at the New York Stock Exchange.

New York Attorney General Eliot Spitzer had been pushing hard to get the deal done by the end of this week. A number of state securities regulators who have taken part in the complex negotiations were said to be traveling to New York on Thursday for the big announcement.

In a final push toward reaching a deal, securities regulators from Spitzer's office and other agencies were holding all-day discussions Wednesday with representatives from Citigroup, which regulators have identified as the worst offender in their investigation into tainted stock research and Wall Street conflicts of interest.

Citigroup, initially facing a $500 million fine, may be ordered to pay up to $350 million more than twice as much as any other Wall Street firm. Credit Suisse First Boston, the second-worst offender in the eyes of regulators, could pay a $150 million penalty.

Other firms, including Goldman Sachs, Morgan Stanley and Lehman Brothers, are looking at paying fines ranging from $50 million to $75 million.

A source close to the negotiations said that Spitzer's office, in a sign they intend to wrap up the investigation, has canceled scheduled interviews with potential witnesses against Citigroup and Jack Grubman, the former Salomon Smith Barney telecom analyst.

Grubman, who once was the highest-paid analyst on the Street, earning $20 million in a single year, may also have to pay. One source said regulators might also announce a deal with Grubman that has him pay a large fine and forfeit his right to work in the securities business.

Grubman's lawyer could not be reached for comment. Officials with Citigroup and Spitzer's office also were unavailable for comment.

In an interview this week with TV talk-show host Charlie Rose, Spitzer said no Wall Street executives were facing any criminal charges as part of the inquiry, which also includes the Securities and Exchange Commission and the National Association of Securities Dealers.

While Spitzer and other regulators have left the door open to the filing of civil charges against Wall Street executives, most securities lawyers say even that's unlikely especially if Grubman reaches a deal with regulators.

One of the issues still being worked out, sources say, is how much information regulators will release to the public about their investigations. Spitzer and other regulators are pushing for a detailed "statement of facts" outlining the case against each firm. But some Wall Street firms, most notably Citigroup, have been resisting that move, fearing it could expose them to more shareholder suits and public ridicule.

Beyond the fines, securities regulators will finally unveil details of a plan to require brokerages to provide their customers with access to research reports from at least three so-called independent research firms.

Another aspect of the deal will be the enactment of a new regulation that will put additional curbs on contacts between investment bankers and analysts. Regulators are also going to enact new rules that will make it more difficult for Wall Street firms to allocate shares in hot initial public offerings to corporate executives of companies that do investment banking business with them.

The various inquiries stem from concern that investment bankers, especially during the bull market, pushed stock analysts to slant their research on companies that were generating millions of dollars in investment banking fees.

The so-called global settlement talks began in mid-October.

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