Interrelated sales and marketing strategies conducted by private firms are apparently verboten, even despite the existence of an explicit law prohibiting such.
Extortion by governmental entities, on the other hand - even with laws explicitly referencing it as illegal - is apparently a negotiable point.
*****
Spitzer Warns Street: Settle or Expect More Probes
Fri, 1 Nov 2002, 12:30pm EST
New York, Nov. 1 (Bloomberg) -- New York Attorney General
Eliot Spitzer issued a warning to Wall Street: join his efforts to
reform the industry and end conflicts-of-interest in stock
research or get used to being investigated.
Addressing lawyers for the 10 largest brokerage firms
yesterday in a meeting to settle industry probes, Spitzer said he
was prepared to ``dig through e-mails for the next five years'' to
uncover more evidence against the companies, people familiar with
the meeting said. Spitzer made the remark after each side
complained that the other leaked details about the talks.
Regulators and the securities firms, which met at the New
York Stock Exchange, are working to reach an agreement to end
investigations that have pummeled brokerage firms' shares this
year. To settle allegations that they deceived investors with
misleading stock recommendations, securities firms are ready to
pay as much as $1 billion to subsidize non-investment banking
firms that produce stock market research.
Spitzer ``is saying he'd go to the mat with these cases to
achieve what he wants,'' said Robert Heim, a securities lawyer and
former Securities and Exchange Commission enforcement official.
The attorney general and SEC enforcement chief Stephen Cutler
last week gave Merrill Lynch & Co., Morgan Stanley, Credit Suisse
First Boston and seven other securities firms a five-page proposal
aimed at settling the dispute.
The two sides are holding talks to come to terms on issues in
that proposal that remain unresolved. These include whether the
firms will be required to pay fines to states and restitution to
investors as well as how much contact analysts can have with
bankers, people familiar with the matter said. Cutler said he will
provide the firms with more information about possible fines next
week, people said.
Moving Forward
Industry executives said they didn't think Spitzer's comment
was a sign settlement talks are falling apart. The firms have
agreed in principle with the regulators' plan to subsidize
independent research and insulate research departments from
banking pressures.
The firms have told regulators that any settlement should
resolve all issues at once and include fines and restitution. The
subject may be contentious. Morgan Stanley, for example, has told
Spitzer's office it shouldn't have to pay a fine because it didn't
violate any laws.
The attorney general has been focused on the stock research
practices of Wall Street securities firms for most of the year. In
April, he announced a case against Merrill Lynch, releasing e-
mails that he said showed that the company's stock recommendations
were influenced by investment banking fees. In May, Merrill agreed
to pay a $100 million fine but that settlement hasn't been
approved by all 50 states.
The proposal by Spitzer and Cutler calls for brokerages to
give clients access to research produced by the independent firms
along with equity research their own analysts produce. A three-
person committee, selected by the regulators, would award annual
contracts to as many as 20 independent companies.
Research firms would be picked based on the quality and
performance of their reports and the fees that they charge. The
proposal would allow in-house analysts to help bankers assess
companies that are being taken public while prohibiting firms from
considering such work in setting the analysts' pay.
Spitzer spokesman Darren Dopp and SEC spokeswoman Christi
Harlan declined to comment.
Merrill Lynch is a passive, minority investor in Bloomberg
LP, the parent of Bloomberg News.
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