Massachusetts officials on Monday accused Credit Suisse First Boston of producing fraudulent research in a civil complaint that seeks about $2m in restitution for the state’s investors and a greater separation of analysts and investment bankers.
However, the complaint stops short of radical remedies such as spinning off CSFB’s research operations. Instead, it calls for reforms meant to insulate analysts from dealmakers. CSFB said the complaint was “riddled with misleading statements and inaccuracies” and could undermine industry-wide efforts to devise new rules for Wall Street research. It said the complaint offered no evidence of “false research reports”.
William Galvin, Massachusetts secretary of state, said he was compelled to act because the Securities and Exchange Commission has failed to act” and because self-policing by Wall Street “has failed to protect investors in the US”.
Mr Galvin said his investigation which included the study of 250,000 e-mails found that CSFB’s technology research was “tainted and corrupted” by its investment bankers.
Mr Galvin’s complaint was particularly critical of Frank Quattrone, head of CSFB’s global technology group. It argued that Mr Quattrone and his lieutenants “exercised enormous control over analysts” that “ultimately resulted in analysts disseminating fraudulent information into the marketplace”.
Mr Galvin said he had also turned up “extensive evidence” that CSFB engaged in “spinning” that is, steering shares in sought-after initial public offerings to executives in hopes of winning investment banking business.
The complaint said: “Individuals affiliated with investment banking deals were bribed with allocation of shares.”
CSFB said it “did not award IPO allocations in exchange for investment banking business”.
The complaint seeks an administrative fine of $1.96m from CSFB, plus $162,000 to cover the costs of investigation and holding a hearing on the complaint.
The complaint seeks that CSFB’s research department be set up as made a separate legal entity supervised by Credit Suisse’s compliance and legal personnel.
It would ban analysts from participating in the marketing of CSFB investment banking services and forbid CSFB from linking its research coverage to banking assignments.
The complaint said Credit Suisse would have to fund research, without regard to investment banking proceeds.
CSFB found fault with Mr Galvin’s methods, saying unlike other regulators his office “did not interview or take testimony from even a single current CSFB employee”.
Mr Galvin earlier had referred evidence concerning CSFB to Eliot Spitzer, the New York attorney-general, and asked him to consider criminal charges.