INTERVIEW-Spitzer plans new assault on Wall St research
By Jack Reerink and Brian Kelleher
NEW YORK, June 5 (Reuters) - Sitting in an office cluttered with prison-made furniture, New York State Attorney Eliot Spitzer plots his next attack on the stock pickers huddling in Wall Street's oak-paneled suites.
"Research ... should flourish in an environment where the public can believe there's a fundamental integrity to the research and not the product of bias," Spitzer said in an interview on Wednesday. "We are dealing with the companies individually as we see problems and trying to structure resolutions."
Spitzer has put the fear of God into Wall Street. He last month forced Merrill Lynch & Co. Inc. <MER.N> to pony up $100 million and overhaul its research to settle charges it misled investors by issuing overly bullish stock picks to win banking business. Key in reaching a settlement were 30,000 internal Merrill e-mails -- some showing analysts privately ridiculed stocks they touted to the investing public.
The 42-year-old lawyer isn't done. His staff on the case -- about 10 lawyers and paralegals -- is busy carting in loads of documents: internal memos, bonus letters to analysts, statements by whistle blowers and, above all, e-mails. E-mails are Spitzer's favorite because they are informal and "have a sense of truthfulness to them," giving a glimpse of Wall Street's innermost thoughts, Spitzer said.
"We have issued subpoenas to a number of other investment houses to gather evidence, Spitzer said. "We can expedite it more because we have other entities that are helping us now."
WHO'S NEXT?
Spitzer isn't naming names. But sources have told Reuters his probe has widened to include Morgan Stanley <MWD.N>, Citigroup Inc.'s <C.N> Salomon Smith Barney, Goldman Sachs Group Inc. <GS.N> and Credit Suisse First Boston.
Spitzer expects a little bit of a news "hiatus" as his staff is is trying to make sense of the documents. But a new round of settlement discussions will be ugly when it happens: Spitzer intends to put embarrassing internal communications into the public domain, like he did with Merrill.
"If we found equivalent evidence, I would feel some obligation to make the evidence public," he said.
That would provide ammunition for individual lawsuits and class-action litigation -- which investors should use to regain some of their stock losses, Spitzer said.
Not every firm is created equal, as companies like Merrill and Morgan Stanley target Main Street brokerage clients, while Goldman and others handle accounts for more sophisticated investors like pension funds and the ultra-rich. These "different dynamics" mean Spitzer is handling the banks differently, although he declines to give details.
"I don't think the principle that the houses need to adhere to shifts. But the nature of their business imposes different obligations on them," Spitzer said. "My concern is for Mr. and Mrs. Smith on Main Street ... who may be investing $10,000 or $15,000 (and) who don't understand that the analysts are also playing footsie with the investment bankers."
NO BONUS FOR SPITZER
Some $48 million of the Merrill settlement will go -- the check hasn't cleared yet -- to New York State's coffers. Unfortunately, little will make its way to Spitzer's operation, which has an annual budget of $170 million, Spitzer said.
"That would be nice," Spitzer quipped. "You'd see a new carpet."
Spitzer's office furniture is manufactured exclusively by New York State prisoners -- solid stuff that's getting a little raggedy with age, Spitzer said. An odd mix of makes and styles -- dining room chairs, a table, desk and couch -- crowd a bluish wall-to-wall carpet that has seen better days.
The Attorney General's offices occupy seven floors of a downtown Manhattan skyscraper that, ironically, also houses the Securities Industry Association, the trade group for brokerage firms and investment banks. Spitzer's personal office -- where family photographs far outnumber vanity shots of Spitzer shaking hands with former President Clinton and other luminaries -- overlooks the World Trade Center site.
SPITZER SPURS SEC TO ACTION
Wall Street was shaken by Spitzer's bombshell accusations and damning evidence against Merrill, revealed on April 8. Merrill shares took a nosedive after Spitzer dug up embarrassing e-mails by former Internet guru Henry Blodget.
Since then, the Securities and Exchange Commission and other state attorney-generals have launched their own probes into the state of Wall Street research. The SEC also pledged to go beyond recent analyst guidelines it crafted with the New York Stock Exchange and the National Association of Securities Dealers.
"Were it not for the e-mails coming out, there would never have been a move to go beyond the NASD proposed rules," Spitzer said.
After working through Blodget's off-the-cuff e-mails, Spitzer quipped he's looking forward to reading more work by the former analyst, like his memoirs.
CRITICS DON'T FAULT HIS FACTS
Spitzer, who ranks among his biggest successes a crackdown on Manhattan grocers who underpaid delivery employees, certainly has made his mark on Wall Street with the headline-grabbing analyst probe. Many brokerage wags in private accuse Spitzer of grandstanding in a bid to become New York's next governor.
Spitzer is aware of barbs about his political ambitions. AG stands for "Aspiring Governor" at many investment houses. But he says his political agenda for now runs no further than a re-election campaign this November. He has a carefully prepared but powerful response to his detractors:
"If the worst they can say about me is that this is designed to get headlines, I'll live with that," Spitzer said. "Because they're not saying I'm wrong."
(Additional reporting by Per Jebsen)
06/05/02 16:24 ET |
