Interesting NYT article on Lehman (though not bt)
February 16, 2003
At Lehman, the Case of the Buried Stock Ratings
By GRETCHEN MORGENSON
IT is something of a Wall Street mystery: When did Holly B. Becker of Lehman Brothers, the No. 1-ranked Internet analyst in America, stop covering the sector and why weren't Lehman's clients notified about it? (Or, for that matter, Fidelity's — which distributes Lehman's research?)
Ms. Becker wrote her last research note at the firm — the subject was Priceline.com — on June 27, 2002. Her final Internet industry update, initially published on June 14, was included in the firm's weekly research piece dated June 24. Throughout last summer, Ms. Becker's ratings — including buy recommendations on Yahoo, the Internet search engine, and Alloy, a youth-oriented Web site — remained intact. Clients who called to speak with her during this time were told that she was on maternity leave; her assistants, though not free to talk with customers, were holding the fort, clients say they were told.
It was also during this time that Ms. Becker was notified by securities regulators that she and her husband, Michael J. Zimmerman, a trader at SAC Capital Advisors, a giant hedge fund, could face charges of insider trading. Investigators in the case are examining whether Mr. Zimmerman received copies of Lehman Brothers research before its publication and profited based on the reports. According to two people briefed on the investigation, Lehman Brothers suspended Ms. Becker in June. Lehman is not a target of the investigation.
Oddly, though, it was not until Sept. 16, 2002, that Lehman quietly changed the ratings on Ms. Becker's stocks in its weekly research review. The buy ratings, "2's" in Lehman's lexicon, fell to "4's," the identifier when a rating is suspended. But nowhere in that report did the firm note whether Ms. Becker's status at the firm had changed; her name, title and telephone number still appeared in its final pages.
Nor did the rating changes appear elsewhere in the report, where such moves are highlighted. Only a careful reader turning to the back of the report, where the firm lists all the companies it follows, might have noticed that the ratings on Ms. Becker's stocks had been suspended.
None of this would matter except for two facts. First, the stocks Ms. Becker rated a buy — Yahoo and Alloy — were quite volatile during the summer. From the date of Ms. Becker's last industry update to the date the firm suspended her ratings, Yahoo lost 36 percent of its value, and Alloy fell 28 percent. Lehman had underwritten a secondary offering of Alloy's shares in February 2002 at $15.21 each.
A fund manager who is a Lehman client, but who declined to be identified, said, "For ratings to go out when the analyst had not done any work on these names for months is pretty abominable."
That Lehman would not be more forthcoming about Ms. Becker's status is also remarkable, given that Wall Street's research practices were under scrutiny by securities regulators much of last year. Over the summer, in fact, regulators devised rules governing analyst activities that are intended to make their conflicts more apparent.
One new rule will require brokerage firms to advise clients when they discontinue research coverage on a company. Notice of the withdrawal, it states, "must be made in the same manner as when research coverage was first initiated" by the firm and must include the analyst's final recommendation or rating. Meant to curtail the Wall Street practice of quietly dropping coverage on companies, instead of officially downgrading them, the rule, along with the others, is pending while the industry comments.
Lehman declined to comment on the situation, and Ms. Becker's lawyer said he could not reach Ms. Becker and could not comment. So the mystery remains unsolved. |
