SEC May Block Tax Deduction in Wall Street Pact, People Say
By Robert Schmidt
Washington, April 24 (Bloomberg) -- The Securities and Exchange Commission, reviewing the $1.4 billion Wall Street conflict-of-interest settlement, may recommend that the 10 firms be barred from deducting the cost from taxes or seeking insurance reimbursement, people familiar with the plan said.
An additional provision in the agreement with Citigroup Inc., Merrill Lynch & Co. and eight other investment banks would say the money the firms pay to fund independent research and educate investors is not intended to be tax-deductible. Senate Finance Committee Chairman Chuck Grassley and Senate Commerce Committee Chairman John McCain said the punishment is meaningless if the firms don't have to pay the full penalty.
``We should all know the tax and insurance consequences of this proposal,'' said Grassley, an Iowa Republican, earlier this week. He said he was concerned ``that Wall Street may be getting just a slap on the wrist.''
The firms reached a preliminary settlement in December with state and federal regulators of claims that to win banking business, their analysts misled investors with recommendations to buy stocks that they privately disparaged. SEC approval is among the final required steps before the settlement would take effect. If it clears the SEC, the agreement would still need to be approved by a federal judge.
Other firms in the settlement are Credit Suisse First Boston, Bear Stearns Cos., Goldman Sachs Group Inc., J.P. Morgan Chase & Co., Lehman Brothers Holdings Inc., Morgan Stanley, UBS Warburg LLC and U.S. Bancorp. Deutsche Bank AG, earlier scheduled to be part of the settlement, will be held back by its failure to produce e-mails relating to its analysts' recommendations, California regulators said.
Closed Meeting
The five SEC commissioners are meeting today in closed session to continue hearing a presentation on the settlement terms from SEC Enforcement Director Stephen Cutler. Today's session is the second closed meeting the commissioners have held this week to discuss the settlement. The wording of the new provision is still being debated, the people said.
SEC spokesman John Nester declined to comment.
SEC Chairman William Donaldson, replying last month to Grassley about his concerns that the firms could deduct the cost of the settlement from their taxes or claim insurance reimbursement, wrote: ``I share your view that settlements should not be structured to provide wrongdoers with tax or insurance benefits. At the same time, certain remedies available may be tax deductible under the IRS code or eligible for insurance coverage.''
No vote on the settlement is expected today although the SEC still is planning to hold a press conference on Monday to announce the agreement, these people said.
Separate Settlements
Cutler has been presenting the case to the commissioners as 10 different settlements, one for each firm, these people said. Ultimately, the SEC commissioners will take 10 separate votes to approve the agreement, these people said.
New York Attorney General Eliot Spitzer and other regulators have released e-mails from the firms' analysts in which they admitted buy recommendations were given to some stocks to win business from banking clients.
``For the settlement to have meaningful punitive effect and deterrent value, it must reflect the principle that wrongdoers should pay for the wrongs they have committed,'' said McCain, an Arizona Republican, in a statement yesterday. ``These burdens should not be transferred to others.''
Last Updated: April 24, 2003 12:19 EDT |
