- The Washington Times - Monday, November 18, 2002

The top investigator looking into conflicts of interest on Wall Street yesterday confirmed that a settlement with large brokerage houses is imminent.
New York Attorney General Eliot Spitzer, appearing on ABC's "This Week" program yesterday said a deal would be reached by the end of the year but denied reports that it would be finalized as soon as this week.
"It may not be this week, but we're going to get there," said Mr. Spitzer, who declined to specifically discuss reports that said several Wall Street firms would be fined as much $200 million each as part of the settlement. He said fines will be imposed but that changes in rules governing the relationship between investment advice and banking units were more important.
"They'll pay big sums of money is my guess," Mr. Spitzer said. "The money is less important to the small investor than changes to rules of the game."
Key to any settlement, Mr. Spitzer said, would be rules dictating that brokerage firms hire independent research companies to dispense advice in addition to that given by in-house analysts.
Stephen Cutler, the enforcement chief for the Securities and Exchange Commission, has backed the plan.
Most Wall Street firms already have agreed to create a division between research and investment banking departments so that the two businesses have different management, legal departments and compensation committees. Mr. Spitzer said yesterday that he still favors the creation of an oversight board to do independent research for clients of large brokerage houses.
Mr. Spitzer responded to criticism that the private negotiations with brokerage firms might lead to a settlement favoring the large companies. Critics of the talks argued that a more open debate on the matter, including congressional hearings, would be likely to produce greater penalties.
"I would prefer that these issues be dealt with by Congress and the SEC," Mr. Spitzer said. "The fact is, they didn't."
Mr. Spitzer has been critical of the relationship between company analysts and investment banking arms, saying investment bankers have pressured analysts to put positive or negative ratings on certain stocks. Mr. Spitzer's case against Wall Street began in April, when he released e-mails showing that Merrill Lynch analysts privately criticized stocks they promoted. Merrill Lynch paid $100 million to settle that case.
Credit Suisse, which is expected to pay a fine as part of the settlement, paid $100 million in January to settle charges that it distributed shares of initial public offerings in exchange for kickbacks.
A $200 million fine would be the fifth-largest settlement by a Wall Street company. Drexel Burnham Lambert paid the largest fine, $650 million, in 1988. Prudential Securities paid $371 million in 1993, Paine Webber paid $332 million in fines in 1996 and Salomon Brothers paid $290 million in 1992.
Though he declined to talk about specific cases, Mr. Spitzer acknowledged yesterday that his office was looking into charges that Citigroup analyst Jack Grubman made stock picks for reasons other than earning money for his clients. In e-mails disclosed late last week, Mr. Grubman said his stock picks were made to help Citigroup Chairman and Chief Executive Sanford Weill in a struggle for control of the company. Furthermore, the e-mails showed that Mr. Grubman may have altered his stock picks to help his twin daughters get into an elite preschool in New York.


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