Five leading Wall Street investment banks improperly paid competitors to publish research on their investment banking clients without disclosing the arrangements, the Securities and Exchange Commission said Monday.
The revelations in SEC complaints against the firms, released as part of a $1.4 billion legal settlement, call into question for the first time the objectivity of research that was produced by firms without investment banking relationships to corporations named in the research reports.
It’s unknown if firms receiving these payments were expected to issue positive coverage. ”I can’t imagine you’d pay for unfavorable coverage,” says Columbia University law professor John Coffee, a securities law expert.
Most allegations in the settlement were well known. But the payments between investment banks for research ”is a new wrinkle” in Wall Street’s conflicts of interest, Coffee says.
A representative at an unidentified firm receiving payments from U.S. Bancorp Piper Jaffray wrote: ”From August 31, 1999 until August 15, 2000, we were the only firm in print on Onyx Pharmaceuticals and we remain a Strong Buy rating,” according to one document released by the SEC Monday.
The SEC said Bear Stearns, J.P. Morgan and Morgan Stanley all made payments for research without disclosing them, while UBS Warburg and U.S. Bancorp Piper Jaffray were making and receiving such payments. Details the SEC complaints cover:
UBS Warburg got checks totaling $213,000 in connection to research in Flextronics and Atmel. The letter with the check for the Flextronics research was called a ”special research check.” The firm also paid $433,000 to firms for providing ”research” of companies it brought public, including eSpeed and Netopia.
U.S. Bancorp Piper Jaffray received more than $1.8 million from other investment banks in exchange for providing ”research” for stocks and bonds that other investment banks brought public, including Just for Feet, Comverse Technology and JDS Uniphase.
The firm also paid $430,000 to other investment banks for issuing research on stocks it brought public, including Onyx Pharmaceuticals and Buca. Piper Jaffray CEO Andrew Duff says the firm will back regulators’ reforms.
Morgan Stanley paid $2.7 million to 25 investment banks to produce research on at least 12 IPOs it led from 1999 through 2001, including Veritas Software, Agile Software and Atmel.