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Depth of Wall Street corruption exposed
Mon Apr 28 23:56:31 2003
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Depth of Wall Street corruption exposed
http://www.dailytelegraph.co.uk/money/main.jhtml?xml=/money/2003/04/29/cnspitz29.xml&sSheet=/money/2003/04/29/ixfrontcity.html

By Simon English in New York (Filed: 29/04/2003)

A two-year investigation into Wall Street corruption
drew to a close yesterday with a $1.4 billion
settlement, fraud charges against major banks and
disgrace for some of the financial world's leading
figures.

In hundreds of pages of evidence released by Eliot
Spitzer, the New York attorney general who led the
crusade, internal bank documents repeatedly show that
analysts knew their own investment advice was biased.

Banks are setting aside billions of dollars to deal
with the thousands of lawsuits expected from investors
who lost money from the collapse of the internet boom.

One internal paper shows the head of global equity
research at Salomon Smith Barney describing the firm's
share research as "ridiculous on its face" in a
presentation to senior management at parent company
Citigroup.

To Mr Spitzer, this showed how far up the chain the
corruption went, as analysts derided their own share
tips and brokers hid the truth from investors, all
with the approval of management.

The $1.4 billion from 10 firms includes $487.5m in
fines and $387.5m in disgorged profits, with the rest
going to fund independent research and investor
education. The settlement promises to change the way
Wall Street does business for ever, breaking the
historic ties between bankers seeking fees for
corporate work and analysts punting shares to
investors.

Henry Blodget, the former Merrill Lynch internet guru,
will pay $4m to settle fraud charges and has been
banned from the industry. Last year emails from Mr
Blodget in which he described his own share tips as
"junk" and "dog" emerged. Salomon Smith Barney's Jack
Grubman earlier agreed to pay $15m and accept a
lifetime ban.

The harshest words were reserved for Credit Suisse
First Boston, Merrill Lynch and Citigroup, which the
watchdogs say issued fraudulent share research. Mr
Spitzer rounded on chief executives who "shifted risk
to unknowing investors while guaranteeing their own
rewards".

He referred to figures showing that at the start of
the 1990s bull market chief executives were paid 42
times the pay of the average worker; by the end they
were getting 411 times that amount.

Citigroup issued a statement of contrition, regretting
that its research "raised concerns about the integrity
of our company". Although Mr Spitzer and the
Securities & Exchange Commission stopped short of
accusing Citigroup chairman Sandy Weill of fraud, the
Wall Street legend has clearly been censured.

Citigroup executives are now banned from direct
contact with analysts following suggestions that Mr
Weill influenced Mr Grubman's share ratings. Mr
Spitzer said Citigroup ignored internal warnings that
its research was "basically worthless".

The banks will be barred from offsetting the fines
against tax, though few will struggle to pay the
penalties.

Other banks named and shamed are Bear Stearns, Goldman
Sachs, Lehman Brothers, JP Morgan Chase, Morgan
Stanley, UBS Warburg and US Bancorp Piper Jaffray, all
of which settled lesser charges of violating market
rules.
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Global resolution' of Wall Street investigations [28 Apr '03] - Office of New York State Attorney General Eliot Spitzer
http://www.dailytelegraph.co.uk/money/exit.jhtml?exit=http://www.oag.state.ny.us/press/statements/global_resolution.html

==================
April 29, 2003 - New York Times:

Finding Fraud on Wall Street

After five months of negotiating the fine print, 10 Wall Street firms accused of issuing tainted stock research agreed yesterday to the terms of a landmark $1.4 billion settlement. Three of the firms — Citigroup's Salomon Smith Barney, Merrill Lynch and Credit Suisse First Boston — were charged with actually issuing "fraudulent" stock recommendations. This unambiguous language, not the fines' dollar amounts, may be the most significant outcome of the inquiry undertaken by the New York attorney general, Eliot Spitzer, and other regulators.

The language sets the record clear: brokerage firms compromised their integrity in an effort to curry favor with their banking clients at the expense of individual investors. Along with a treasure trove of new evidence, this finding should strengthen the legal position of investors seeking restitution through private litigation.

Jack Grubman and Henry Blodget, analysts who became celebrities during the market bubble, agreed to a lifetime ban from the securities industry. They will also pay fines totaling $19 million, a modest sum in light of their combined compensation and the nature of their behavior. But as with their former employers — Citigroup and Merrill Lynch — these fines may represent only a fraction of their eventual liability.

Mr. Spitzer's inquiry became front-page news when he produced e-mail showing how Mr. Blodget, Merrill's Internet analyst, touted stocks he privately called "junk." Mr. Grubman issued similarly inflated valuations to please Citigroup's investment banking clients. Evidence released yesterday also pointed to improper contacts between Mr. Grubman and Sanford Weill, Citigroup's chairman. Citigroup is paying the largest penalty and is being singled out for the most intrusive monitoring of its research operations.

The settlement's structural reforms, announced last December, are aimed at insulating research analysts from their investment-banking brethren. Brokerage firms must also provide clients with competing independent research and end the infamous practice, called "spinning," of allotting hot initial public offering shares to favored clients. Firms are already adopting many of these reforms to regain investors' trust. Even experienced investors were shocked to discover how widespread these practices were. The settlement should be closely monitored to prevent their reappearance.
http://www.nytimes.com/2003/04/29/opinion/29TUE2.html?ex=1052193600&en=0d1d2f06168e8ea5&ei=5062&partner=GOOGLE   

• ‘Confidence’: One Nation Under Fraud — Uri Dowbenko, Tue Apr 29 15:47