Merrill was 'not alone' in misleading buyers
By Peter Spiegel in Washington
Published: June 26 2002 19:55 | Last Updated: June 26 2002 19:55
Eliot Spitzer (pictured), the New York attorney general who last month forced Merrill Lynch to pay a $100m fine for issuing misleading reports from securities analysts, said on Wednesday his office had found that other large Wall Street firms had engaged in identical behaviour, and indicated it could lead to criminal charges.
In testimony before a congressional sub-committee, Mr Spitzer said that the "evidence at other houses replicates what we found at Merrill", where prosecutors uncovered dozens of e-mails that showed analysts privately ridiculed technology stocks they were hyping in public reports.
Mr Spitzer declined to name any of the firms where his investigators have found such evidence, but under a division of labour agreement made with regulators of other states, the New York attorney general's office is responsible for investigating Morgan Stanley and Salomon Smith Barney, employer of Jack Grubman, the WorldCom analyst who has come under scrutiny for his close ties to the crumbling telecommunications giant.
"The evidence has indicated to us that what happened at Merrill is not limited to Merrill," Mr Spitzer said, acknowledging he had been in contact with most of the big Wall Street firms.
Immediately following the Merrill settlement, Salomon became the first of the Wall Street banks to adopt reforms imposed on Merrill by Mr Spitzer, separating analysts from the influence of the firm's investment banking operations.
Philip Purcell, chief executive of Morgan Stanley, has said he does not expect Mr Spitzer to find any disparaging remarks in e-mails the firm has handed over to his office.
Mr Spitzer said his inquiry had found that despite safeguards put in place at most Wall Street financial institutions, there had been widespread flouting of such restraints and no consequences for analysts who violated them.
"Remarkably, throughout our investigation, which has now led us to examine the documents of a significant number of companies, there is absolutely no evidence that any compliance department ever took any action to stop behaviour that clearly violated internal rules and state and federal law," Mr Spitzer told the Senate subcommittee on consumer affairs, which has also been investigating the Enron collapse.
"The failure of the industry's much-vaunted compliance structure is appalling," he added.
Mr Spitzer was criticised by Senator John McCain, an Arizona Republican, for not bringing criminal charges against individuals at Merrill, saying he did not believe the $100m fine and the structural changes imposed on Merrill were enough to force real reforms on Wall Street.
"I wish you would put someone in jail," Mr McCain said. "Until someone goes to jail, I'm not sure these people are going to get the message."
Mr Spitzer said his decision not to pursue criminal charges against Merrill stemmed largely from his concern that an indictment against the firm could lead to massive layoffs at a company that employs more than 60,000 people.
He indicated, however, that criminal charges against individuals remained an option in any forthcoming cases.
Under the terms of the settlement deal with Merrill, no such charges can now be brought against Merrill employees by Mr Spitzer's office, but Mr Spitzer noted they still could face federal charges for the same violations. |
