Massachusetts securities regulators recommended Thursday that their counterparts in New York consider filing criminal charges against brokerage Credit Suisse First Boston and some of its stock analysts over allegedly tainted advice given to investors.
The recommendation raises the stakes in state and federal regulators’ multiple investigations of Wall Street’s conduct during the bull market. Criminal, as opposed to civil, charges could be devastating for CSFB’s reputation and its ability to do business.
The Massachusetts Securities Division asked New York Atty. Gen. Eliot Spitzer to consider pursuing a criminal case, citing evidence indicating that CSFB analysts in recent years gave stocks favorable ratings solely to curry favor with investment-banking clients.
As part of a multi-state investigation, Massachusetts regulators have combed through thousands of e-mails and other internal CSFB documents.
A number of e-mails show analysts felt internal pressure to talk up stocks of CSFB banking clients, said William Galvin, the Massachusetts secretary of state.
In one e-mail, for example, a CSFB analyst wrote that he publicly kept a “buy” rating on certain stocks, but privately told some clients he felt otherwise. He dubbed that strategy the “Agilent Two-Step,” a reference to Agilent Technologies, a company that CSFB helped bring public in 1999.
The e-mails indicate a “pattern of deceit,” Galvin said. “This is a pattern that apparently ran throughout the company.”
In a statement, CSFB said it is “dedicated to upholding the highest standards for research independence and ethical behavior.” The firm said it believes that after Spitzer has studied the evidence, “he will determine that a criminal proceeding is not warranted.”
Darren Dopp, a Spitzer spokesman, said his office would review the Massachusetts data over the next few weeks.
“They have uncovered significant evidence of conflicts of interest,” Dopp said. “We need to take the next step and determine what actions are appropriate.”
The Justice Department last year decided not to file criminal charges against CSFB relating to an investigation of the brokerage’s new-stock offering practices. The firm eventually paid a $100-million civil fine to settle the case.
It is unusual for a regulator in one state to file a criminal referral to a prosecutor in another. That was done, Galvin said, because CSFB is based in New York.
His state’s investigation is continuing, and it is probable that his office will bring civil charges against CSFB, Galvin said.
New York state law also gives prosecutors greater leeway in pursuing criminal charges against suspected fraud perpetrators.
Yet the referral could pose a dilemma for Spitzer. He considered bringing criminal charges this year against Merrill Lynch & Co. over similar analyst issues, but agreed instead to allow the firm to settle the case for $100 million and the promise to reform its behavior.
Spitzer also is conducting an investigation of analyst conduct at Salomon Smith Barney, and may not want to divert his energies, said Jack Coffee, a Columbia University law professor.
Separately, CSFB and Goldman Sachs Group Inc. on Thursday supplied documents to a congressional committee investigating their handling of initial public stock offerings in the late 1990s, a committee spokeswoman said.
Also on Thursday, CSFB’s parent, Credit Suisse Group, named John Mack, CSFB’s chief executive, as co-chief executive of the parent firm.
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