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NASD Drafting Rules for Bankers' Opinions

June 12, 2004|From Bloomberg News

The NASD, which polices brokerage firms, is developing rules that will require securities firms to disclose incentives for providing opinions on the value of major transactions, an NASD spokeswoman said Friday.

The rules would focus on so-called fairness opinions, which corporate boards often seek from bankers to defend an acquisition's price. The opinions can serve as evidence that the board acted reasonably if shareholders sue over a sale or other transaction.

"We're focusing on a disclosure-based approach to the potential conflicts in fairness opinions," said NASD spokeswoman Nancy Condon.

The Wall Street Journal reported Friday that the NASD, formerly known as the National Assn. of Securities Dealers, had sent letters to Wall Street securities firms as part of an investigation of fees, valuation methods and potential conflicts associated with the opinions.

The NASD is probing whether bankers eager to please investment-banking clients sign off on their proposed valuations without independently analyzing them, the paper reported. Condon declined to discuss the investigation.

In some transactions, the bank advising a company on how to structure a deal also provides an opinion defending the fairness of the price. Bankers typically collect success fees when takeovers are consummated.

"You have to acknowledge that people are wearing a lot of different hats these days," as a result of consolidation in the financial services industry, said Stephen Fraidin, a corporate lawyer in New York. "The NASD's concern is, when one of these firms issues an opinion, have they adequately separated that from their other business?"

Last year, Credit Suisse First Boston advised on 246 completed mergers and acquisitions, more than any other firm, according to Bloomberg data. Morgan Stanley and Citigroup Inc. each handled 230 transactions.

Spokespeople for all three firms declined to comment.

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