Wall Street, Facing Analyst Probe, Tries to Curb States' Power
By Philip Boroff
New York, June 15 (Bloomberg) -- Wall Street securities firms are proposing legislation that would strip state regulators of their power and shut down their investigation of analyst conflicts of interest, state officials said.
Morgan Stanley Dean Witter & Co. and other firms have drafted a proposal to the Senate Banking Committee to limit the power of state regulators, who are investigating the firms for allegedly producing biased stock research that misled investors.
``This could shut down enforcement,'' said Joseph Borg, president of the North American Securities Administrators Association, which is leading a probe of more than a dozen securities firms. ``It would prevent us from continuing the investigation.''
The effort shows that investment banks want to limit states' oversight and answer to only one regulator: the Securities and Exchange Commission. The firms fear that rulemaking by as many as 50 states would hurt profits at a time when the industry is in its deepest slump in years.
New York Attorney General Eliot Spitzer, regulators from other states and the SEC are investigating conflicts of interest in research at more than a dozen securities firms. Last month, Merrill Lynch & Co. agreed to pay a $100 million fine to settle allegations its research was designed to win and retain investment- banking clients.
Merrill also agreed to make structural changes, such as creating a new committee to oversee research and no longer giving bankers a say in setting analyst pay.
Preemptive Move
The legislation proposed by the firms would ``preempt'' state action with regard to analyst conflicts, said Borg, who is director of the Alabama Securities Commission. ``I'm being told it's so broad.'' People in the industry say the intention is to avoid 50 states imposing different sets of requirements on firms, and give the SEC ultimate authority to set rules.
Morgan Stanley Chief Executive Officer Philip Purcell was in Washington this week meeting with legislators to discuss the proposal. ``We think that legislation at the federal level is a good way to restore investor trust and confidence,'' said Morgan Stanley spokesman Raymond O'Rourke. ``And we support efforts to that end.''
People in the industry say the amendment is not intended to impede the states' investigation. ``The intention is to have a national regulatory framework for securities and avoid balkanization,'' O'Rourke said.
The proposal may be introduced as an amendment to a Senate bill aimed at overhauling the regulation of accountants, the state officials said. The bill, sponsored by Senator Paul Sarbanes, a Maryland Democrat, would create a five-member accounting oversight panel independent of the accounting profession with subpoena-like authority and power to impose fines.
The Senate Banking Committee, chaired by Sarbanes, is scheduled to vote on the bill Tuesday, said Jesse Jacobs, a spokesman for Sarbanes.
State officials said it's not clear which legislator, if any, will sponsor the amendment. Jacobs said senators submitted 47 amendments to the bill, including 20 in which the contents haven't been disclosed.
Pitt Speaks
``We assume it's an industry-sponsored amendment,'' said Marc Beauchamp, executive director of the North American Securities Administrators Association.
Securities firms may already have found support in Washington.
In a speech Thursday, SEC Chairman Harvey Pitt said states have a right to investigate analysts, but not to set rules for them. ``If there are going to be structural or national changes in standards, they cannot and must not be affected by individual states trying to govern a national profession,'' he said. ``Only the SEC can do that.''
An SEC spokesman, Brian Gross, declined comment, saying the commission doesn't take a position on legislation.
In April, Richard Baker, chairman of the House Financial Services subcommittee on capital markets, urged the SEC to lead industry reform ``because of the need for uniformity'' in the markets.
Borg is scheduled to hold a news conference in Washington on Monday to discuss the industry's proposal. |
