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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Uncle Frank who wrote (54667)	8/25/2002 9:42:02 AM
From: stockman_scott	Respond to of 65232

Underwriting Fraud Lead Editorial The New York Times August 25, 2002 As federal prosecutors circle around former Enron executives, it is important that investigators don't lose sight of the troubling possibility that bankers may have condoned corporate misconduct and actively helped crooked companies defraud shareholders. These corporate scandals raise serious regulatory issues for the banking industry. Three years ago Congress dismantled the Depression-era wall separating commercial from investment banking. That was done for sensible enough reasons, but now the Bush administration and Congress must determine whether remedial regulations are needed in light of the recent scandals. Eliot Spitzer, New York's attorney general, has taken a lead in looking at banks' behavior. On Friday, The Wall Street Journal reported that Mr. Spitzer is investigating whether Citigroup's Salomon Smith Barney unit issued a bullish research report on AT&T stock at the behest of Citigroup's chief executive, Sanford Weill, in order to reel in huge fees from the phone company's 2000 spinoff of its wireless subsidiary. The bank strongly denies the allegation, but the news helped stall the stock market's recent recovery, reminding investors that there may be plenty more developments on the corporate-scandal front. It was no accident that the stock market hit bottom this year in late July when the Senate Permanent Subcommittee on Investigations held hearings that laid out the extent to which J. P. Morgan Chase and Citigroup helped Enron create its deceptive off-balance-sheet partnerships. Complex deals put together by these two banks and Wall Street firms like Merrill Lynch helped Enron disguise billions of dollars in debt as energy trading income. The banks maintain that they engaged in no wrongdoing and that they cannot be held responsible if a client inappropriately accounted for a transaction. The Senate panel uncovered a number of internal documents showing that the bankers themselves had serious qualms about the appearance of the Enron transactions as well as Enron's motivations for entering into them. Citigroup's Salomon Smith Barney must still answer for the behavior of its recently departed star telecommunications analyst, Jack Grubman. Mr. Spitzer, the House Financial Services Committee and market regulators are all conducting investigations into the allocation of hot initial public offering shares to top executives of telecommunications companies that were favored clients, and Mr. Grubman's role in the deals. At issue is whether chief executives like WorldCom's Bernard Ebbers were given what amount to improper kickbacks in exchange for investment banking business, something Citigroup denies. Citigroup also contests charges raised in a lawsuit brought by pension funds that last year snatched up $12 billion in WorldCom bonds and now say that the bank failed to review the state of WorldCom's business adequately because of various conflicts of interest. It is far from certain that any financial institution will be charged with wrongdoing in these scandals or held liable for others' losses. But even if done unwittingly, there is no denying that prestigious banks helped bankroll huge frauds that hurt millions of investors. nytimes.com