US securities regulators on Wednesday continued their crackdown on Wall Street stock analysts, accusing a former Merrill Lynch managing director of issuing misleading research about Tyco and providing inappropriate gifts to Dennis Kozlowski, its former chief executive.
In a civil suit that was filed on Wednesday, the National Association of Securities Dealers the securities industry’s self-regulatory group said Phua Young made exaggerated claims about Tyco’s prospects to investors despite his private doubts.
Regulators said the case was striking in terms of the concessions that Mr Young made to curry favour with Tyco. It said Mr Young who was dismissed by Merrill in April 2002 would present drafts of his research reports to Tyco for approval before he published them. “Please review ASAP. I will not send out until I hear from you first!” Mr Young wrote to Tyco’s chief financial officer, in an e-mail he signed “loyal Tyco employee!”
The NASD also said Mr Young gave a $4,500 case of wine to Mr Kozlowski in 2001, far above the industry limit of $100. Mr Young routinely flew on Tyco’s jet with Mr Kozlowski, the NASD said.
The charges, which could result in a fine and possible ban from the securities industry, come one month after regulators finalised a $1.4bn settlement with 10 leading investment banks.
Merrill declined to comment. Mr Young could not be reached.
The faulty research charge centres on Mr Young’s analysis of a restructuring plan Tyco announced in January 2002. The company planned to split into four units and retire debt by selling CIT, its commercial lending arm, for as much as $11bn.
Mr Young told investors CIT could fetch as much as $8bn. The NASD claimed he was warning the company’s management that CIT would not fetch that amount and that the company was facing a liquidity crunch.
Tyco sold CIT for $4.6bn, and last month took a $1.37bn charge after discovering accounting irregularities.