- The Washington Times - Wednesday, April 24, 2002

The federal government, spurred by Enron Corp.'s collapse and concern about accounting irregularities, will conduct criminal investigations to determine whether securities analysts are misleading the public, a federal official said.
Michael Chertoff, head of the Justice Department's criminal division, said in an interview yesterday that the government will focus on whether securities firms slant research to win investment-banking fees. His remarks escalate the pressure on Wall Street companies already facing congressional inquiries and shareholder lawsuits.
Punishing analysts for "breaking the rules in the way they disseminate and handle the information of publicly traded companies seems to me to be one of the front-burner white-collar enforcement issues for the next several years," Mr. Chertoff said. "We're going to be doing a lot of cases involving financial reporting."
The Securities and Exchange Commission, the National Association of Securities Dealers and the New York Stock Exchange have recommended that the industry strengthen firewalls within firms. The Securities Industry Association, which represents the firms, in June recommended that analysts shouldn't be paid for investment-banking business or report to investment bankers.
Mr. Chertoff is sending a signal that the Bush administration is prepared to crack down on Wall Street abuses, experts said, raising the threat of fines, prison sentences and the taint of criminal wrongdoing.
"The Justice Department is firing a clear shot across the bow of the big brokerage houses," said Robert Mintz, a former federal prosecutor and partner at McCarter & English in Newark, N.J.
Mr. Chertoff oversees an investigation into possible fraud at Enron, which sought protection from creditors in December in the biggest U.S. bankruptcy.
He said his agency must serve as an industry watchdog.
Some investors, while endorsing investigations, say analysts are being unfairly tainted.
"If all analysts get accused, I don't think that's fair," said Robert Bloom, president of LF Capital, which has about $1 billion in assets. "The 99.9 percent of analysts who are honest and conscientious don't make the front page."
Merrill Lynch & Co., Morgan Stanley Dean Witter & Co. and Citigroup Inc.'s Salomon Smith Barney Inc. declined to comment on Mr. Chertoff's remarks. Spokesmen at Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. didn't return calls.
New York Attorney General Eliot Spitzer last week put the focus on misleading stock research by prodding Merrill Lynch to agree to disclose which companies followed by its analysts paid fees for advice on mergers or to arrange stock sales.
Merrill Lynch and its former Internet analyst, Henry Blodget, have been sued by shareholders of Internet Capital Group Inc. and At Home Corp. who say they received tainted investment advice.

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