SEC Finally Decides to Join Probe
Into Analysts' Conflicts-of-Interest
By CHARLES GASPARINO and SCOT J. PALTROW
Staff Reporters of THE WALL STREET JOURNAL (here is what i guess you picked up on, it is now on the WSJ site --did you here from a "little birdie":) as i could not find it in print at the time you stated it:)--max )
online.wsj.com (a pay site)
After sitting on the sidelines for weeks as the New York attorney general sped ahead with an investigation of Wall Street analysts, the Securities and Exchange Commission, Wall Street's main regulator, is finally joining the probe.
The SEC said it had opened a "formal inquiry" that will be conducted with the New York Stock Exchange and the National Association of Securities Dealers. New York Attorney General Eliot Spitzer and other states' regulators will also take part. The announcement came after the U.S. Justice Department and other states earlier this week said they were interested in joining New York's investigation.
The SEC has faced mounting criticism that it has acted too slowly( some angry people with influence are turning up heat,i suspect, this could boil into a huge the next ENE, but worse, as it strikes at WS itself, but first Pitt must go, and there is where a political war could erupt--max> in picking up on charges recently made public by Mr. Spitzer following a 10-month probe into the research practices at Merrill Lynch & Co. and other firms. Some veteran SEC officials have raised questions about whether SEC Chairman Harvey Pitt should have disqualified himself from making decisions about the inquiry because of his past legal work on Wall Street.
Mr. Pitt said the agency is taking an active role on the issue. "Investors have the right to know what it is that they are getting" in terms of Wall Street research, he said.
While the latest SEC move could calm some of the recent criticism, the agency stopped short of announcing a formal "investigation" into the matter, in which the agency's enforcement division would be authorized to issue subpoenas and build a case that could lead to civil charges against Wall Street firms. It left unclear whether and when the enforcement division would become involved. (this is CRITICAL, and i feel the democrats will put on the heat to see that it happens as this has political implications written all over it(democrats want to put on image of fighting for the "ripped-off" versus the "big business" is all we care about, republicans, that simply is how the game is played--max)
Two weeks ago Mr. Spitzer released a series of e-mails showing that Merrill analysts often harbored private doubts about companies that received higher private ratings from the firm.
The controversy surrounding Mr. Pitt's involvement intensified Wednesday, after Mr. Pitt met with Mr. Spitzer to discuss his case, which so far centers on Merrill Lynch, the nation's largest brokerage firm, and the research of its Internet group, headed by former star analyst Henry Blodget. yes this storm will build around Pitt, Pitt is "Big Boys" toy--max )
People with knowledge of the negotiations say Mr. Pitt called on Mr. Spitzer to search for some global solution that doesn't single out Merrill, and gave no indication that the commission will launch its own formal investigation into the matter. The commission's enforcement staff, the investigatory arm of the SEC, had been itching to launch a probe based on Mr. Spitzer's findings, people with knowledge of the matter say. But the enforcement division had been ordered by Mr. Pitt to allow another department, the division of market regulation, to take the lead, these people add.
A Merrill Lynch spokesman said the firm had no comment on the SEC's decision to begin an inquiry.
SEC spokeswoman Christi Harlan said the commission has been looking into issues related to analysts' conflicts of interest for months, and defended the way the agency has handled the matter.
Until he became chairman in August, Mr. Pitt was a partner at law firm Fried, Frank, Harris, Shriver & Jacobson, and Merrill Lynch was one of his main clients, according to a report Mr. Pitt filed in July with the Office of Government Ethics. ( LOL, head of SEC must go, and go now--max)
It also lists several other Wall Street firms, which may be targets of Mr. Spitzer's probe. In a conflict of interest agreement Mr. Pitt was required to submit in June, he stated that for a year after he took office, he wouldn't participate in any "particular matter involving specific parties" who were his former clients. The one potential exception cited in the agreement was if the SEC believed his participation was so essential that it would waive the requirement that he recuse himself. A former SEC ethics official said it would be the chairman himself who would make that determination.
Paul Gonson, a former SEC solicitor who said that Mr. Pitt is a close friend, says he disagrees with the SEC chairman's decision to take an active role in dealing with Mr. Spitzer on the investigation of Merrill Lynch and other firms. Mr. Gonson, who was in charge of the SEC's ethics office, says he believes Mr. Pitt has the legal right to participate in the decisions, in part because the analyst issue affects the whole securities industry and not just one or two individual firms. But he also says that Mr. Pitt's involvement "does not look good." ( i dare say--max)
Mr. Pitt declined to be interviewed by The Wall Street Journal on his personal conflict-of-interest policy, and the SEC has rejected a Freedom of Information Act request from this newspaper asking for records of advice he has received from the SEC's ethics counsel, Barbara Hannigan.
Write to Charles Gasparino at charles.gasparino@wsj.com and Scot J. Paltrow at scot.paltrow@wsj.com
Updated April 26, 2002>> |
