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Regulators Present Evidence Against 12 Securities Firms

Findings by agencies probing analyst conflicts of interest increase the chances of brokerages facing fines.

November 07, 2002|From Bloomberg News

U.S. regulators have presented evidence that 12 of the largest securities firms pressured analysts to promote investment-banking clients, people familiar with the situation said.

Citigroup Inc., U.S. Bancorp Piper Jaffray Inc. and Credit Suisse First Boston Inc. are among firms from which e-mail and other internal documents were cited at a meeting among regulators Tuesday.

The findings increase the likelihood that major securities firms may face fines to head off charges they misled investors. When that might happen was clouded Tuesday by the resignation of Securities and Exchange Commission Chairman Harvey L. Pitt.

"We hope we can conduct any transactions with firms even without a chairman," said New York Atty. Gen. Eliot Spitzer, who more than a year ago began the investigations that later were joined by the SEC and other regulators. "We'll have to wait to see how this unfolds," he said in an interview.

Representatives of the SEC, NASD (formerly the National Assn. of Securities Dealers), New York Stock Exchange and regulatory agencies from about a dozen states shared the material among themselves as they sought to build their conflict-of- interest cases, the people said.

"The more smoking guns they have, the more bargaining chips they have," said James Angel, a Georgetown University finance professor and former visiting academic at the NASD. "It reflects on the basic credibility of the firms. The firms may want to settle quickly to keep this from dragging on any longer."

The nine other firms in the negotiations are Morgan Stanley, Goldman Sachs Group Inc., Bear Stearns Cos., J.P. Morgan Chase & Co., Deutsche Bank, Lehman Bros. Holdings Inc., Thomas Weisel Partners, UBS Warburg and Merrill Lynch.

SEC Staff Seeks Fraud

Charges Against Firms

In the latest move by regulators in another Wall Street probe, SEC investigators have told Goldman Sachs Group and J.P. Morgan Chase that they plan to ask the agency to file fraud and market manipulation charges against the firms, in connection with their handling of initial public stock offerings.

The SEC's staff alleges that the companies allotted shares in initial public offerings to investors who promised to buy more stock later at a higher price, ensuring a gain when trading began.

J.P. Morgan spokeswoman Kristin Lemkau, who said the company received the so-called Wells notice in recent weeks alerting it to the possibility of charges, said the bank denied any wrongdoing.

Goldman spokesman Lucas Van Praag said Goldman did nothing wrong in allocating IPO shares.

SEC spokesman John Heine declined to comment.

The SEC notification is one of the last steps before the agency's staff asks the commission to file a civil lawsuit or administrative proceeding. After firms receive Wells notices, they are given a chance to argue why a case shouldn't be brought.

J.P. Morgan shares fell 41 cents to $22.06 and Goldman Sachs shares lost 19 cents to $76.55, both on the New York Stock Exchange.

From Bloomberg News

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