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Billion Dollar Analyst Conflict
Settlement
Ten of Nation's Top Investment Firms Settle Enforcement Actions Involving Conflicts of Interest Between Research and Investment Banking Historic Settlement Requires Payments of Penalties of $487.5 Million, Disgorgement of $387.5 Million, Payments of $432.5 Million to Fund Independent Research, and Payments of $80 Million to Fund Investor Education and Mandates Sweeping Structural Reforms
Washington, DC and New York, Apr. 28, 2003 - Securities and Exchange
Commission Chairman William H. Donaldson, New York Attorney General Eliot
Spitzer, North American Securities Administrators Association President
Christine Bruenn, NASD Chairman and CEO Robert Glauber, New York Stock
Exchange Chairman and CEO Dick Grasso, and state securities regulators
announced today that enforcement actions against ten of the nation's top
investment firms have been completed, thereby finalizing the global
settlement in principle reached and announced by regulators last December.
That settlement followed joint investigations by the regulators of
allegations of undue influence of investment banking interests on securities research at brokerage firms, and the enforcement actions announced today track the provisions of the December global settlement in principle.
The ten firms against which enforcement actions are being announced today are:
| a. |
Bear, Stearns & Co. Inc. (Bear Stearns) |
| b. |
Credit Suisse First Boston LLC (CSFB) |
| c. |
Goldman, Sachs & Co. (Goldman) |
| d. |
Lehman Brothers Inc. (Lehman) |
| e. |
J.P. Morgan Securities Inc. (J.P. Morgan) |
| f. |
Merrill Lynch, Pierce, Fenner & Smith, Incorporated (Merrill Lynch) |
| g. |
Morgan Stanley & Co. Incorporated (Morgan Stanley) |
| h. |
Citigroup Global Markets Inc. f/k/a Salomon Smith Barney Inc. (SSB) |
| i. |
UBS Warburg LLC (UBS) |
| j. |
U.S. Bancorp Piper Jaffray Inc. (Piper Jaffray) |
Penalties, Disgorgement and Funds for Independent Research and Investor Education
Pursuant to the enforcement actions, the ten firms will pay a total of $875
million in penalties and disgorgement, consisting of $387.5 million in
disgorgement and $487.5 million in penalties (which includes Merrill Lynch's
previous payment of $100 million in connection with its prior settlement
with the states relating to research analyst conflicts of interest). Under
the settlement agreements, half of the $775 million payment by the firms
other than Merrill Lynch will be paid in resolution of actions brought by
the SEC, NYSE and NASD, and will be put into a fund to benefit customers of
the firms. The remainder of the funds will be paid to the states. In
addition, the firms will make payments totaling $432.5 million to fund
independent research, and payments of $80 million from seven of the firms
will fund and promote investor education. The total of all payments is
roughly $1.4 billion.
Under the terms of the settlement, the firms will not seek reimbursement or
indemnification for any penalties that they pay. In addition, the firms will
not seek a tax deduction or tax credit with regard to any federal, state or
local tax for any penalty amounts that they pay under the settlement.
Attached is a list of how much each firm is paying pursuant to the settlement. The individual penalties include some of the highest ever imposed in civil enforcement actions under the securities laws.
Summary of the Enforcement Actions
In addition to the monetary payments, the firms are also required to comply
with significant requirements that dramatically reform their future
practices, including separating the research and investment banking
departments at the firms, how research is reviewed and supervised, and
making independent research available to investors. The changes that the
firms will be required to make are discussed below.
The enforcement actions allege that, from approximately mid-1999 through
mid-2001 or later, all of the firms engaged in acts and practices that
created or maintained inappropriate influence by investment banking over
research analysts, thereby imposing conflicts of interest on research
analysts that the firms failed to manage in an adequate or appropriate
manner. In addition, the regulators found supervisory deficiencies at every
firm. The enforcement actions, the allegations of which were neither
admitted nor denied by the firms, also included additional charges:
| a. |
CSFB, Merrill Lynch and SSB issued fraudulent research reports in
violation of Section 15(c) of the Securities Exchange Act of 1934 as well as
various state statutes; |
| b. |
Bear Stearns, CSFB, Goldman, Lehman, Merrill Lynch, Piper Jaffray, SSB
and UBS Warburg issued research reports that were not based on principles of
fair dealing and good faith and did not provide a sound basis for evaluating
facts, contained exaggerated or unwarranted claims about the covered
companies, and/or contained opinions for which there were no reasonable
bases in violation of NYSE Rules 401, 472 and 476(a)(6), and NASD Rules 2110
and 2210 as well as state ethics statutes; |
| c. |
UBS Warburg and Piper Jaffray received payments for research without
disclosing such payments in violation of Section 17(b) of the Securities Act
of 1933 as well as NYSE Rules 476(a)(6), 401 and 472 and NASD Rules 2210 and
2110. Those two firms, as well as Bear Stearns, J.P. Morgan and Morgan
Stanley, made undisclosed payments for research in violation of NYSE Rules
476(a)(6), 401 and 472 and NASD Rules 2210 and 2110 and state statutes; and |
| d. |
CSFB and SSB engaged in inappropriate spinning of "hot" Initial Public
Offering (IPO) allocations in violation of SRO rules requiring adherence to
high business standards and just and equitable principles of trade, and the
firms' books and records relating to certain transactions violated the
broker-dealer record-keeping provisions of Section 17(a) of the Securities
Exchange Act of 1934 and SRO rules (NYSE Rule 440 and NASD Rule 3110) |
| e. |
From Securities and Exchange Commission Website. |
The following stocks are part of the Global Settlement:
MORGAN STANLEY
Agile Software
Atmel
Concord/EFS
eBay
Loudcloud
Sabre Group
Veritas Software
iBeam Broadcasting
Transmeta
AT&T Latin America
US BANCORP PIPER JAFFRAY
Buca, Inc.
Comverse Technology
Emisphere Technologies
Esperion Therapeutics
JDS Uniphase
Natural Microsystems
Metromedia Fiber Network, Inc.
Onyx Pharmaceuticals
Therasense
Triton Network Systems.
LEHMAN BROTHERS
Broadwing
DDi Corp
Razorfish
RealNetworks
RSL Communcations
MERRILL LYNCH
24/7 Media
Aether
Excite@Home
GoTo.com
Homestore.com
InfoSpace
Internet Capital Group
LifeMinders
J.P. MORGAN
Technology Partners International
International Rectifier
Infineon Technologies
Epicor Software Corporation
CCC Information Services
Participate.com
Vicinity
Intertrust
Mypoints
Concord EFS
GOLDMAN SACHS
StorageNetworks
Loudcloud
GeneProt
Crosswave Communications
Willis
Crown Castle
Exodus
WebEx
Global Crossing
AT&T
WorldCom
360Networks
Winstar Communications
UBS WARBURG
Triangle Pharmaceuticals
Atmel
Espeed
Netopia
Flextronics
Interspeed
Avant Immunotherapeutics
JDS Uniphase
SALOMON SMITH BARNEY
Level 3 Communications
Williams Communications Group
XO Communications
Focal Communications
Adelphia Business Solutions
RCN Communications
Metromedia Fiber Networks
AT&T
Global Crossing
Qwest
Rhythms NetConnections
CREDIT SUISSE FIRST BOSTON
Digital Impact Inc.
Synopsys Inc.
Numerical Technologies, Inc.
Numerical Technologies
Agilent Technologies, Inc.
Winstar Communications, Inc.
NewPower Holdings
Aether Systems
Razorfish
BEAR STEARNS
Sonicwall
Muse
CAIS Internet, Inc.
Digital River
Internet Security Systems
Packeteer
CacheFlo
Agilent Technologies
Andrx Corp
Pets.com
State Securities Commission Links to Analyst Conflict Information
Citigroup (Salomon Smith Barney) Analyst Conflict Information 
Credit Suisse First Boston Corporation Analyst Conflict information
J.P. Morgan
Goldman Sacks Analyst Conflict Information
Pipper Jaffray Analyst Conflict Information
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