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Wedbush Says It's Adhering to Code

The investment bank seeks to assure the state treasurer of compliance with standards.

March 10, 2004|Marc Lifsher | Times Staff Writer

SACRAMENTO — After being threatened with possible sanctions, Los Angeles investment bank Wedbush Morgan Securities said Tuesday that it was moving quickly to clear up a miscommunication with Treasurer Phil Angelides over a new state code of financial conduct.

Wedbush Morgan and two other firms, Edward Jones of St. Louis and CIBC World Markets of Toronto, have been sent sanction letters. They could be prohibited from doing business with the state unless they agree by March 31 to comply with the new rules, Angelides said at a news conference.

Wedbush Morgan President Ed Wedbush said his firm had always complied with the tenets of the treasurer's code and would continue to do so. "We'll have a hard copy response on [Angelides'] desk within a couple of days, saying we already are complying," Wedbush said.

A spokeswoman for Edward Jones said her firm had yet to receive any correspondence from Angelides, while CIBC's Stephen Forbes said his bank had "every confidence" of meeting the treasurer's terms by month's end.

Since 1999, CIBC has participated in underwriting $26.2 billion worth of state bonds, Wedbush Morgan in $3.5 billion and Edward Jones in $1.8 billion, the treasurer's office said.

Forty-one companies, including such industry giants as Bear Stearns & Co., Credit Suisse First Boston and J.P. Morgan Chase & Co., are in full compliance with the new standards, Angelides said.

Among other things, the code of conduct requires that firms have "firewalls" between their research and investment departments. The separation is designed to prevent a firm's salespeople from influencing its research analysts. The code also requires that investment banks' research departments have their own legal and compliance staff and have written criteria for awarding pay raises to analysts.

"I'm heartened by the high level of compliance, which tells me that the financial institutions get it," Angelides said.

The treasurer imposed his "investment protection standards" in May, basing them on settlements reached last year by New York Atty. Gen. Eliot Spitzer and the Securities and Exchange Commission with 10 investment houses.

"These standards will help put an end to destructive marketplace abuses that have rocked our nation's financial markets and left taxpayers and investors to pick up the pieces," Angelides said.

The new rules apply to all companies that handle securities for the state's $52-billion Pooled Money Investment Fund or underwrite state bond issues. California bond sales hit a record $34.4 billion in 2003. Two giant state pension funds, the California Public Employees' Retirement System and the California State Teachers' Retirement System, with $278 billion in combined assets, also are in the process of putting the treasurer's principles into practice.

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