Analyst and Her Husband Under Scrutiny
By GRETCHEN MORGENSON
Columnist
The New York Times
January 15, 2003
Holly B. Becker, one of Wall Street's most powerful Internet stock analysts, and her husband have been notified by securities regulators that they may face enforcement action over possible insider trading based on her firm's research.
The regulatory inquiry, which began almost two years ago, centers on whether information from Ms. Becker's firm, Lehman Brothers, was made available to her husband, Michael J. Zimmerman, a stock trader at SAC Capital Advisors, a hedge fund with offices in Connecticut and New York, according to people involved in the inquiry. Investigators are trying to determine whether he knew about research reports by Lehman analysts before they were released to clients and whether he profited by trading in those securities.
Ms. Becker has not published any research since June, and a Lehman spokeswoman declined to comment on whether she is on a leave of absence.
David E. Brodsky, a lawyer at Cleary, Gottlieb, Steen & Hamilton in New York, who responded to the regulators' notice last summer on behalf of Ms. Becker, 36, and Mr. Zimmerman, 33, declined to comment last night. A message left at the office of Steven A. Cohen, SAC's founder and principal, was not returned. As is its practice, the S.E.C. would neither confirm nor deny the existence of the investigation.
Amazon.com, the online retailer, is one of the stocks whose research and trading have aroused interest. According to the people involved in the investigation, regulators are examining trades by SAC Capital in Amazon shares in June and July 2000. In each month, Amazon's shares fell after reports by Lehman analysts, including one by Ms. Becker.
Regulators have looked at trading in the days leading up to the release of a negative Amazon report written by Ravi Suria, then a convertible-securities analyst at Lehman. Mr. Suria's report questioned the viability of Amazon and was made public after the market closed on June 22, 2000.
Amazon's shares tumbled 19 percent the next day on heavy volume. But on the trading day before the report was made public, Amazon shares lost 9 percent of their value on three times the previous session's trading volume.
Mr. Suria, who left Lehman in March 2001 to join a hedge fund, declined to comment.
Regulators have also examined SAC's trading in Amazon in late July 2000. Although Ms. Becker reiterated her buy recommendation on Amazon shares immediately after Mr. Suria's report was issued in June, she downgraded the shares to a neutral rating after the market closed on July 26. Amazon shares fell 13 percent the next day.
A Lehman spokeswoman said: "Lehman Brothers will not comment on the investigation except to say that it does not involve the firm."
Lehman was among the 10 big brokerage firms that agreed last month to pay almost $1 billion in fines to end investigations into whether they issued misleading stock recommendations and handed out hot new shares to curry favor with corporate clients. Lehman agreed to pay $50 million in fines under the settlement and to pay for independent stock research that it would distribute to its clients.
Internet stock analysts at other firms, especially Mary Meeker at Morgan Stanley and Henry Blodget at Merrill Lynch, were better known than Ms. Becker when Internet stock prices were soaring.
But Ms. Becker's star rose when she became one of the first analysts at a major firm to question publicly the prospects of such investor darlings as Amazon and Yahoo. In June 2000, for example, she began covering Yahoo with a neutral rating, considered a sell signal in Wall Street parlance. The day after her report came out, the stock fell almost 8 percent. In October 2000, she downgraded shares of America Online from a so-called trading buy, erasing 30 percent, or $40 billion, of AOL's market value in subsequent trading days.
Soon, Ms. Becker was making even more frequent appearances on cable news programs devoted to financial matters and became the subject of admiring articles in the financial and general news media.
According to a person who knows Mr. Zimmerman, he followed retail stocks at SAC Capital as an analyst and a trader in 2000 and reported to the portfolio manager at the firm in charge of retail consumer stocks. In early 2001, Mr. Zimmerman became portfolio manager, following retail consumer stocks. He married Ms. Becker on Aug. 5, 2000.
SAC is one of the biggest hedge funds and is known for frequent and rapid trading. It is unclear what types of trades Mr. Zimmerman may have made in Amazon or other shares.
If Ms. Becker shared the contents of unpublished research with her husband who profited by trading on the information, her actions could be a breach of fiduciary duty to Lehman Brothers and its clients, said Lewis D. Lowenfels, an authority in securities law at Tolins & Lowenfels in New York. Such an exchange of nonpublic information could also violate the rules of the NASD and the New York Stock Exchange, which require their members to adhere to high standards and equitable principles of trade.
If Mr. Zimmerman used unpublished Lehman reports to make profitable trades for himself or his firm, he could be held criminally liable for misappropriating material and nonpublic information for his own use, securities lawyers said.
It is not clear whether investigators have concluded how any information was exchanged.
According to two former colleagues of Ms. Becker, Lehman Brothers installed a computer connected to the firm's network in the home she shared with Mr. Zimmerman in Manhattan. The computer provided access to various Lehman Brothers reports, including works in progress by her colleagues in the Internet group as well as the advertising and services research group.
Ms. Becker began her career on Wall Street in 1988 as an analyst at First Boston. After graduating from the Harvard Business School in 1992, she became a consultant at McKinsey & Company in New York. But she returned to Wall Street in 1997, joining Salomon Brothers, where she dealt with consumer packaged goods stocks. She had a stint as an analyst at Jennison Associates, a portfolio management firm, but returned to Salomon in September 1999. She joined Lehman six months later, as the firm's top Internet stock analyst. Her first day on the job was the day the Nasdaq composite index reached its record high of 5,048.62.
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