SEC's Pitt Calls Spitzer's Stock-Analyst Plan `Very Drastic'
By Neil Roland
Washington, May 10 (Bloomberg) -- New York State Attorney General Eliot Spitzer's idea of breaking up the stock research and investment banking businesses at Wall Street firms ``is a very drastic remedy,'' Securities and Exchange Commission Chairman Harvey Pitt said.
Speaking at an SEC investor conference today, Pitt said the federal agency would consider this step ``only as a last resort.'' Spitzer, who is in settlement talks with Merrill Lynch & Co. after an investigation of its analyst practices, has been considering a separation of Merrill's research and banking operations. His investigation turned up Merrill e-mails showing that analysts at the U.S.'s largest brokerage were issuing recommendations on stocks they disparaged in private.
Pitt is facing investor and congressional pressure to crack down on analyst conflicts and deceptive accounting practices. Watchdog group Common Cause called for Pitt to resign today, saying he has abandoned to Spitzer the role of defending shareholders from deceptive analysis.
Pitt dismissed Common Cause's complaint and said Spitzer's plan may not be necessary.
``The notion of government requiring divestiture is a very serious step and should only be taken when there is no other potential solution to the problems that caused it,'' he said.
The SEC approved its own rules earlier this week that seek to limit conflicts of interest among stock analysts. The rules, which don't go as far as Spitzer's idea, forbid analysts from reporting to bankers and getting paid from specific banking deals.
SEC Investigation
Spurred by Spitzer's findings, the SEC began its own investigation of analysts' practices. Pitt, a Republican, has said the SEC may consider a second round of rulemaking after it completes an investigation of analyst practices.
A spokeswoman for Spitzer, a Democrat, declined comment.
The SEC rules, which are being phased in over the next six months, also forbid analysts from trading against their own recommendations. In addition, analysts must disclose their ownership of any stocks that they are reviewing. Securities regulators will review these rules in a year.
A group of workers' pension funds called on Pitt to pursue Spitzer's remedy.
Analysts aren't serving investors because their ``true customer is the investment banking department,'' Damon Silvers, AFL-CIO associate general counsel, told the summit panel. ``I urge you to start a second step tomorrow. Cut the tie that binds investment banks and analysts.''
Representative John LaFalce, a New York Democrat, introduced a bill earlier this year that would have prohibited analysts' pay from being based on investment-banking revenue. The bill failed, and the House instead passed a Republican-sponsored measure that calls on the SEC to study analyst conflicts of interest. |
