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Massachusetts Alleges CSFB Misled Investors

The complaint says bankers pressured stock analysts to issue upbeat reports on clients.

October 22, 2002|Walter Hamilton | Times Staff Writer

NEW YORK — Massachusetts regulators filed a complaint Monday alleging that Credit Suisse First Boston intentionally misled investors by hyping the stocks of companies for which the firm did investment banking work.

In an administrative complaint, the Massachusetts secretary of state charged that CSFB bankers pressured technology stock analysts to issue upbeat reports on CSFB clients and then pointed to that bullishness when trying to win business from other companies.

The charges revolve around a series of e-mails written by CSFB analysts, some of whom appear to bemoan the pressure they felt to talk up stocks of CSFB clients.

In one e-mail, an analyst appears to admit giving a company a high rating against his "better inclination" to avoid criticism from CSFB investment bankers.

The complaint "shows the culture of the company had a total disregard for investors," William Galvin, the secretary of state, said in an interview.

The complaint seeks to separate CSFB's research and investment banking divisions and enact other reforms. In settlement talks this month, Massachusetts demanded that CSFB pay a fine of at least $100 million, sources said. CSFB, a unit of Credit Suisse Group, has 21 days to file a formal response to Monday's complaint.

In a statement, CSFB lashed out at the Massachusetts action, saying it was "hastily initiated" and "riddled with misleading statements and inaccuracies."

"Secretary Galvin has offered no evidence that CSFB disseminated false research reports to the public," the statement said.

The action also angered some state and federal regulators, who have been working to mold a "global" settlement with major firms to resolve myriad government probes of Wall Street practices in the late 1990s.

The regulators say the best way to enact reforms is to reach a single settlement rather than piecemeal deals.

Other regulators asked Galvin to delay taking action against CSFB.

"It's not helpful," said Christi Harlan, a Securities and Exchange Commission spokeswoman.

Along with Eliot Spitzer, the New York attorney general, Galvin has been praised for an aggressive stance that has forced federal regulators to adopt a tough tone on analyst conflicts.

But experts said Monday that the Massachusetts case could complicate attempts at a global resolution.

"I question whether this effort by Massachusetts makes sense at this particularly sensitive time," said Henry Hu, a University of Texas law professor.

Galvin defended his case as "a catalyst toward a broader action."

Though it did not name him as a defendant, the complaint took aim at Frank Quattrone, the head of CSFB's technology banking department. Under his leadership, the complaint alleges, the banking department exerted enormous pressure on analysts.

Quattrone did not return a phone call to his office, though CSFB defended him in its statement.

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