The National Association of Securities Dealers’ move to fine Salomon Smith Barney $5 million for misleading stock research is a ”good first step” but more disciplinary action is needed, New York Attorney General Eliot Spitzer said Monday.
The warning came as Salomon agreed to settle NASD charges that its Salomon investment banking unit and former star analyst Jack Grubman duped investors by recommending Winstar shares even as the telecommunications firm slid toward bankruptcy protection last year.
Ending a probe that lasted almost a year, the NASD, an industry watchdog, also charged Grubman and his assistant, Salomon Vice President Christine Gochuico, for producing the faulty research.
The pair were contesting the allegations, the NASD said. Lawyers for Grubman and Gochuico did not return calls for comment.
For Citigroup, the fine against Salomon, the third-largest ever by the NASD, comes amid a series of broader and potentially more damaging investigations by the Securities and Exchange Commission, the Justice Department and state regulators, led by the New York attorney general’s office.
Citigroup brought in Charles Prince to replace Michael Carpenter at the helm of Salomon two weeks ago in an effort to clean up a growing scandal that has also ensnared rivals such as Credit Suisse First Boston and Merrill Lynch.
Wall Street banks are accused of chasing lucrative investment banking work by hyping stocks and by giving initial public offering shares to corporate insiders. Angry shareholders are suing.
Citigroup was telling investors Winstar could hit $50 a share ”even as the stock plummeted from approximately $20 on Jan. 25, 2001, to 14 cents on April 17 of that year,” the NASD said.
Citigroup had a significant investment banking relationship with Winstar, helping raise more than $5.6 billion and receiving fees of about $24 million, the NASD said.
”The NASD found a clear example of misconduct at Citigroup. . . . But the key question is how pervasive that type of behavior is. The NASD didn’t address it. We plan to,” said Spitzer spokesman Darren Dopp.
Spitzer could complete his Citigroup investigation within weeks. Merrill Lynch agreed to pay a $100 million fine in May after the New York attorney general’s investigators found e-mail from the firm’s analysts privately disparaging companies they touted to the public.
Barry Goldsmith, the NASD’s executive vice president for enforcement, said many of the issues presented in the Salomon case are being investigated at other firms.
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