Securities regulators for Massachusetts today will be the first from several states to file charges against Credit Suisse First Boston, accusing the Wall Street firm of misleading investors with biased technology stocks research and demand that the firm pay $100 million in fines.
Regulators, who reviewed more than 100,000 e-mails, will allege that technology stock analysts engaged in a systematic fraud by deliberately altering research reports to curry favor with investment-banking clients.
CSFB is just one of 14 investment banks under investigation by state securities regulators for possibly giving investors tainted stock research during the Internet boom. In May, Merrill Lynch agreed to a $100 million settlement, becoming the first firm to settle charges that its research analysts recommended stocks they didn’t believe in, aiming to attract or keep the companies as investment banking clients.
At the same time, state securities regulators are working with the Securities and Exchange Commission to forge a global settlement with all of the major Wall Street firms.
That settlement, which may be hammered out by month’s end, is expected to force the firms to separate their stock research business in an effort to eliminate the conflicts of interest that have undermined the integrity and reputation of stock analysts.
”Essentially, I’ve made it clear that we are looking for permanent change in the structure of the operations (in the CSFB case), and we think it would be a model for the industry,” said William Galvin, secretary of state for Massachusetts.
Galvin had been discussing a $100 million settlement with CSFB until two weeks ago, when the talks broke down, according to another person familiar with the case.
Galvin declined to comment on the negotiations, but said, ”Money is secondary to the issue of permanent change in the process and behavior.”
Massachusetts will claim CSFB violated the anti-fraud provision of its Uniform Securities Act. Galvin has referred certain parts of the case to New York Attorney General Eliot Spitzer, who has the power to bring criminal charges under the Martin Act, a powerful consumer-protection law unique to that state.
Victoria Harmon, a spokeswoman for CSFB, said that she had not seen the complaint but that the firm ”has been working closely with all of our state and federal regulators who believe the public interest is best served by pursuing an industrywide global resolution on these matters. We remain committed to achieving reform through this process.”