Wonder if Safa will be withdrawing his recommendation on askj?
SEC Approves Rule Telling Analysts to Certify Reports (Update2)
By Robert Schmidt and Neil Roland
Washington, Feb. 6 (Bloomberg) -- Wall Street analysts will have to vouch for the integrity of their stock picks under a new rule passed by the Securities and Exchange Commission.
The rule -- supported by Citigroup Inc., Merrill Lynch & Co., Credit Suisse First Boston and other investment banks -- requires analysts to certify that their research accurately reflects their personal views and to disclose any payments connected to their recommendations.
``We want analysts to say what they mean, mean what they say, and sign their name to that,'' said SEC Commissioner Cynthia Glassman, a Republican.
The regulation follows a December agreement by 11 large securities firms to pay $1.4 billion to settle charges their analysts issued biased research to help win investment banking business from companies. The rule is part of the SEC's broader effort to restore investor confidence after accounting scandals at Enron Corp., WorldCom Inc. and other companies.
Approved unanimously, the new rule also requires analysts to file quarterly reports with their firms certifying the accuracy of their comments about stocks on television, in interviews and during other public appearances.
TV News
A staple of business news TV coverage during the stock boom of the late 1990s, analysts were criticized by investor advocates for continuing to issue positive recommendations on Enron and other companies as the market declined over the past three years.
``Investors must be confident they can rely on the truthfulness of statements made by market professionals,'' said SEC Chairman Harvey Pitt, a Republican presiding at what may be his last public SEC meeting.
Pitt, who submitted his resignation in November, agreed to stay in the job until the U.S. Senate confirmed a successor. The Senate Banking Committee held a confirmation hearing yesterday on President George W. Bush's nomination of former New York Stock Exchange Chairman William Donaldson, another Republican who may be confirmed as early as next week.
Donaldson told the committee that he favored separating analysts from investment bankers. ``I deplore the denigration of research that has gone on,'' said Donaldson, a co-founder of Donaldson, Lufkin & Jenrette, a securities firm that prided itself on its research. It is now part of Credit Suisse Group.
Qualified Support
Democratic Commissioner Harvey Goldschmid gave the analyst- certification rule qualified support today. ``To me it represents only one more patch, and a patch of marginal value, on an analyst system that many have come to recognize is badly broken,'' he said.
Goldschmid is heading an SEC internal review of analyst rules, which is building on the settlement with the 11 banks, an agreement still awaiting final approval. He and his fellow Democrat Roel Campos, said comprehensive SEC rulemaking was needed to fully address the problem.
The SEC, along with New York Attorney General Eliot Spitzer and other regulators, has been investigating conflict-of-interest allegations at investment banks over the past year.
Along with the $1.4 billion fine, the December agreement required firms to wall off analysts from investment bankers and prohibited brokerages from giving shares in initial public offerings to executives with whom they do business.
Jack Grubman, a former analyst at Citigroup's Salomon Smith Barney unit, settled conflict-of-interest charges, agreeing to pay $15 million and be barred from the securities industry for life. He neither admitted nor denied wrongdoing.
Disparaging E-Mails
Former Merrill Lynch analyst Henry Blodget, who helped push up the demand for Internet stocks, has faced allegations that he recommended stocks he privately disparaged in e-mails. He may be charged with fraud by the National Association of Securities Dealers, people familiar with the situation said last month. Blodget has denied wrongdoing.
The new rule wouldn't add any extra liability to investment banks or analysts, the SEC said. Analysts who issue false reports already are subject to civil fraud charges under securities laws.
Nancy Grunberg, a former SEC enforcement lawyer, said the regulation might help build fraud cases against analysts. ``From an enforcement side, it gives you a clear statement, an easier hook to go after an analyst,'' said Grunberg, now a partner at Venable in Washington.
George Kramer, associate general counsel at the Securities Industry Association, said the investment banking industry supports the SEC's new rule.
``It's a good idea,'' said Kramer. ``It's not the beginning or end of this issue, clearly.''
While investment banks generally backed the rule, Goldman Sachs Group Inc. questioned the fairness of holding stock analysts personally responsible for their recommendations since supervisors can make changes to stock commentaries.
In a Sept. 23 comment letter, Goldman Sachs General Counsel John W. Curtis urged the SEC to change the rule to make analysts certify their work ``subject to supervision policies of the broker or dealer applicable to all research published by it.'' The SEC adopted the final rule without that proposed change.
The SEC's analyst certification rule mirrors similar requirements that the SEC has imposed on senior corporate executives and mutual fund officers, in line with mandates in last year's Sarbanes-Oxley corporate-governance law. |
