Re: [A-List] Operation Restoring Investor Confidence: Merrill-Spitzer Settlement

["Anne Williamson" <annewilliamson@xxxxxxx>]

Here's an excellent example of state-supplied justice; the state will take
in $100M in fines, the perpetrators will have suffered a slap on the wrist
and have been set free to steal again, and the victims?  Zip, nada, nichevo,
zero, absolutely nothing!  -A.

----- Original Message -----
From: Sabri Oncu <soncu@xxxxxxxxxxx>
To: PEN-L <pen-l@xxxxxxxxxxxxxxxxxxx>; ALIST <a-list@xxxxxxxxxxxxxxxxxxx>
Sent: Tuesday, May 21, 2002 4:52 PM
Subject: [A-List] Operation Restoring Investor Confidence: Merrill-Spitzer
Settlement


> Top Financial News
>
> 05/21 16:33
> Merrill, Spitzer Reach Settlement With $100 Mln Fine (Update9)
> By Stephen Cohen and Philip Boroff
>
>
> New York, May 21 (Bloomberg) -- Merrill Lynch & Co. will pay $100
> million and stop giving investment bankers a say in how much
> analysts are paid to settle charges by New York Attorney General
> Eliot Spitzer that the firm's research misled investors.
>
> The biggest securities firm by capital will create a panel to
> review stock rating changes and appoint someone for one year to
> ensure the firm lives up to the agreement. The agreement may do
> little to limit the conflicts of interest that led Merrill
> analysts to recommend shares of clients while privately
> disparaging the companies, some investors say.
>
> "The punishment may not be as severe as people expected," said
> Bruce Simon, who oversees $18 billion as chief investment officer
> at Glenmede Trust Co. "I don't think it changes the way Wall
> Street operates or eliminates the inherent conflict of interest."
> Merrill shares rose as much as 5.1 percent today.
>
> The settlement provides a template for agreements with other
> firms, said Spitzer, who is investigating Credit Suisse First
> Boston, Morgan Stanley Dean Witter & Co., Citigroup Inc.'s
> Salomon Smith Barney Inc. and Goldman Sachs Group Inc. He said
> the agreement will help restore faith in Wall Street, which has
> been shaken by the collapse of the Internet and
> telecommunications stock bubbles.
>
> "It is only through real reform that investor confidence will be
> restored, and this agreement provides real reform," Spitzer said
> a news conference.
>
> The fine is 2.4 percent of Merrill's 2001 operating profit. It's
> equal to a $100 million payment by CSFB, which was the fifth-
> largest settlement by a Wall Street firm.
>
> Led by Eric Dinallo, Spitzer's head of investor protection, the
> attorney general's office last year embarked on a broad probe of
> analyst conflicts. The investigation narrowed to Merrill's
> Internet group following press accounts of analyst Henry Blodget
> lowering his rating of Goto.com Inc. after the Internet search
> engine chose a Merrill rival for the lead role in a stock sale.
>
> Spitzer's probe put pressure on Securities and Exchange
> Commission Harvey Pitt to begin his own investigation, which he
> announced last month.
>
> E-Mails
>
> Spitzer, a 42-year-old Democrat who is running for re-election
> this year, last month cited an e-mail in which Blodget conceded
> that he spent 85 percent of his time in one week on banking
> matters. He confessed in another e-mail that "there is nothing
> positive to say" about Internet Capital Group Inc., a stock he
> recommended investors "accumulate."
>
> Merrill will continue to pay analysts based on banking, but will
> take into account how the transactions analysts work on perform
> for Merrill clients. "I see no way that (the settlement) will
> impact analyst compensation going forward," Komansky said at news
> conference at Merrill's World Financial Center headquarters.
>
> Throughout the negotiations, Spitzer insisted he wouldn't settle
> with Merrill without changing how analysts are paid. He contends
> it's a conflict for analysts to be paid to help launch an initial
> public offering or advise on a merger.
>
> Research analysts will continue to accompany investment bankers
> when they solicit business from potential clients. The analysts
> will have to get approval from research executives to attend such
> pitches. A top-ranked analyst helps securities firms win
> investment- banking business because companies want flattering
> research reports that will encourage investors to buy shares.
>
> Shares, Bonds Rise
>
> Merrill shares rose 47 cents, or 1.1 percent, to $43.85 after
> earlier gaining as much as 5.1 percent.
>
> Spitzer won't create a fund to compensate investors who claim
> they lost millions of dollars because of tainted research,
> leaving that to class-action lawsuits and private arbitration
> cases. The firm faces at least 28 class-action lawsuits from
> investors. Spitzer said requiring an explicit admission of
> wrongdoing would have been a "death warrant" for the firm.
>
> Merrill apologized to investors for the "inappropriate
> communications" brought to light by Spitzer, which "may have
> appeared inconsistent with Merrill Lynch's published
> recommendations," the firm said in a statement.
>
> "For Merrill, a $100 million fine, is, as far as I am concerned,
> an admission of wrongdoing," Spitzer said.
>
> Merrill said it would appoint a compliance monitor for one year
> to ensure the firm is keeping its part of the agreement. The
> monitor, who hasn't yet been named, may become a permanent
> position, Komansky said. The firm will also set up a system to
> monitor e-mail messages between its bankers and analysts.
>
> Merrill will highlight the changes, beginning tomorrow, in print
> advertisements in newspapers, including the New York Times.
>
> Paying States
>
> Merrill agreed to make a civil payment of $48 million to New York
> State and an additional $52 million to settle with all other
> states. Both payments are contingent on acceptance of an
> agreement by the 50 states that have joined Spitzer's probe.
>
> "We will continue to pursue an inquiry with respect to every
> other major firm," Spitzer said, adding that Merrill competitors
> "should come and have a forthright conversation with us," and
> look at the settlement "as a template."
>
> Credit Suisse First Boston, Morgan Stanley, Goldman, Salomon
> Smith Barney, UBS AG's Paine Webber Group Inc. and Bear Stearns
> Cos. received subpoenas from Spitzer.
>
> "The whole industry wants to put this issue behind it," said Mark
> Bronzo, a money manager who invests in securities firms at
> Groupama Asset Management.
>
> Merrill, which lost $11 billion in market value in the month
> after Spitzer's investigation was announced on April 8, wants to
> head off future lawsuits from regulators. The firm was motivated
> to settle because the investigation damaged the company's
> reputation, Komansky told employees two weeks ago.
>
> Drexel Burnham Lambert paid the largest fine, $650 million in
> 1988, followed by Prudential Securities, $371 million in 1993;
> Paine Webber, $332.5 million in 1996; and Salomon Brothers, $290
> million in 1992.
>
> Goldman Sachs responded today by appointing E. Gerald Corrigan,
> former chief executive officer of the Federal Reserve Bank of New
> York as an ombudsman to prevent conflicts of interest among its
> analysts.
>
> "What we're doing is pretty consistent with what the attorney
> general is getting from Merrill Lynch," said Goldman Vice
> Chairman Robert Steel. Spitzer has requested information from the
> firm, he said. "It's not smart for me to speculate on what might
> happen," Steel said. "We feel like we're on the right track."
>
> Morgan Stanley and Credit Suisse First Boston declined to
> comment. A Bear Stearns spokesman didn't respond to requests for
> comment. A Salomon Smith Barney spokeswoman said the firm will
> look at ways to further "investor confidence."
>
> UBS Warburg said it has a "independent research committee"
> reviewing its ratings changes and initiations of coverage.
>
> Stephen Cutler, the SEC's director of enforcement, called the
> settlement "an important milestone for investor protection," and
> added "it is not the finish line, and will not preclude our own
> efforts on behalf of the investing public."
>
> Merrill is a passive, minority investor in Bloomberg LP, the
> parent of Bloomberg News.
>
>
>