June 7, 2001
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New York State Begins Investigation
Of Wall Street Disclosure Practices
By KAREN TALLEY
Dow Jones Newswires
NEW YORK -- The New York attorney general's office has begun an investigation into Wall Street's stock-research practices, including whether analysts are presenting unbiased information to investors.
It is the latest move by regulators to throw a focus on how Wall Street researches stocks and allocates new offerings. In the New York investigation, Wall Street strategists and analysts are quietly being interviewed about what goes on behind the scenes, especially when it comes to making recommendations about stocks, said an analyst who has been interviewed by the attorney general's office.
In a statement to Dow Jones Newswires, spokesman Scott Brown said, "We are always concerned that any conflicts that analysts have are fully disclosed to the investing public. We also want to ensure that investment houses have appropriate safeguards to protect themselves from these conflicts."
There is only a limited amount of power for an attorney general in such a matter. Possible actions would likely be of the bully-pulpit variety -- perhaps making recommendations for more disclosure, or working informally with the industry on disclosure -- rather than a legal case being brought. The attorney general's office often acts as an advocate for consumers, so analysts said the probe into Wall Street research isn't surprising given small investors' growing access to reports and research, through the Internet and investment firms, that has traditionally been aimed at institutional investors.
According to the analyst who was interviewed, the attorney general's office wanted to know if analysts really mean what they say or if they are pressured by their company's other interests. Those interests can include investment banking and some trading activities that can be pulled by a company if the analyst that follows the business is critical of operations, the analyst said.
Patricia Chen, an assistant attorney general, confirmed that her office is looking into practices on Wall Street. Through the investigation, the attorney general's office "wants to understand what's going on," Ms. Chen said. She declined to elaborate, saying the probe still is in its early stages.
Next week, the U.S. House of Representatives' financial-services subcommittee on capital markets will be holding hearings into what kinds of conflicts of interest may exist between analysts who issue reports on companies and the investment firms that seek investment banking or other business from the same companies. |
