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BofA Reportedly Paid for Research on Client

May 30, 2003|From Bloomberg News

Bank of America Corp. made an undisclosed payment to a securities firm in 1999 to publish research on Just for Feet Inc., a client that filed for bankruptcy protection later that year, people familiar with the matter said.

The payment to brokerage U.S. Bancorp Piper Jaffray came two months after Bank of America's securities unit arranged the April 1999 sale of $200 million in high-yield bonds for Just for Feet, a shoe retailer. Most of the proceeds were used to repay loans to Bank of America, the third-largest U.S. bank.

U.S. Bancorp Piper Jaffray received fees of $400,000 in connection with the Just for Feet junk-bond sale, according to documents in last month's $1.4-billion settlement between 10 Wall Street firms and regulators over misleading research. At the end of May 1999, Piper Jaffray was the only brokerage to recommend the stock.

Bank of America wasn't part of the regulatory probe of analyst conflicts of interest, but its payment was similar to those made to brokerages by Morgan Stanley and four other firms during the 1990s stock boom, as detailed in the settlement.

Those transactions broke securities rules because they represented "material" information that wasn't disclosed to investors, said the NASD, formerly known as the National Assn. of Securities Dealers.

"The line of wrongdoing doesn't stop with the banks that were part of the Wall Street settlement," said Donald Langevoort, a Georgetown University law professor. "Securities laws have long said, 'Disclose your conflicts,' to let investors decide whether a recommendation is tainted by bias."

The 10 firms in the settlement neither admitted nor denied charges that they published misleading research to attract investment banking clients.

The undisclosed payments between brokerages for research totaled at least $7.6 million, documents from the settlement showed. Legal experts assume that the understanding among the firms was that paid-for research would be favorable toward the subject companies.

From 1999 to 2001, according to the NASD, U.S. Bancorp Piper Jaffray got more than $1.8 million from rivals in exchange for issuing research reports and providing other services. The brokerage paid $430,000 to other firms to provide research on its own clients.

Bank of America made at least part of the $400,000 payment related to the Just for Feet sale to Piper Jaffray, said four people familiar with the transaction who requested anonymity.

"Because of ongoing litigation involving Just for Feet, we have no comment on this," said Jennifer DiClerico, a spokeswoman for Bank of America's securities unit in New York. Just for Feet investors have sued the bank, claiming that it failed to alert prospective bondholders to the com- pany's "dire financial situation," court documents say.

Erin Freeman, a spokeswoman for U.S. Bancorp Piper Jaffray in San Francisco, declined to comment. Deborah Bortner, a securities administrator for Washington state, which led the Piper Jaffray investigation, also declined to comment.

Bank of America Chief Executive Kenneth Lewis, who took over in 2001, has said he would not tolerate improper conduct by bankers. Last year, Lewis fired three employees who handled the bank's Enron Corp. business. BofA lost $231 million when the energy trader filed for bankruptcy protection.

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