Regulators launch new Wall Street investigation
Multi-state action: Justice hints analysts' conflicts may be criminal matter
Peter Morton
Financial Post; with files from Bloomberg News
WASHINGTON - U.S. securities regulators are launching a multi-state probe into possible conflicts of interest among investment analysts.
The North American Securities Administrators Association said yesterday it will investigate its own firms on how analysts do research and whether there are any securities violations by Wall Street firms.
The move follows its call last week for a ban on analysts going out on road shows to tout stocks.
"The investigation will centre on practices that adversely affected thousands of Main Street investors nation-wide," said Joseph Borg, the association's president.
The regulator's move comes as the U.S. Justice Department broadly hinted yesterday that it may expand its criminal probe of Enron Corp. to look into questionable connections between research and investment divisions of Wall Street's major dealers.
Punishing analysts for "breaking the rules in the way they disseminate and handle the information of publicly traded companies seems to me to be one of the front-burner white-collar enforcement issues for the next several years," said Michael Chertoff, head of the department's criminal division. "We're going to be doing a lot of cases involving financial reporting," he added.
Brian Sierra, a spokesman for Mr. Chertoff, insisted no formal criminal investigation has been launched but the issue "is certainly on our radar screens."
The flurry of new investigations into Wall Street comes after Eliot Spitzer, the New York attorney-general, led a 10-month probe into Merrill Lynch & Co.
The broker's analysts were found to have privately dismissed the investment quality of Internet stocks while publicly touting them.
Merrill Lynch last week agreed to disclose whether its investment division was trying to get the business of clients whose stocks are covered by its analysts. In addition, it and Mr. Spitzer are still discussing possible civil fines although Merrill Lynch is balking at setting up a US$100-million compensation fund for shareholders burned in the Internet crash.
Mr. Spitzer has sent subpoenas to other leading Wall Street firms including Credit Suisse First Boston, Morgan Stanley, Goldman Sachs, Salomon, UBS AG's UBS Paine Webber and Lehman Brothers Inc.
Meanwhile, Merrill Lynch and Henry Blodget, its former Internet analyst, are being sued by a group of shareholders of Internet Capital Group Inc. and At Home Corp. who say they received tainted investment advice.
Last week, Mr. Spitzer called on Congress to re-enact tough securities legislation to combat analysts' conflicts of interest. The House of Representatives is to vote today on a bill that would toughen oversight of U.S. accountants and corporate financial reporting but only have the Securities and Exchange Commission review rules on analysts' conflicts of interest.
The SEC, the National Association of Securities Dealers and the New York Stock Exchange all have recommended the industry strengthen the so-called Chinese walls within firms to avoid pressuring analysts to promote stocks in the hopes of winning investment business. The latest probe by state securities regulators will involve the creation of a 10-state task force led by Frank Widmann, chief of New Jersey's bureau of securities.
The Justice Department is considering expanding its criminal investigation into the collapse of Enron Corp. after several Wall Street analysts told Congress in February they maintained "buy" ratings on Enron stock last fall because the company misled them. |
