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

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

No, Ann, that is a poor example of state-supplied justice, because the state in
the US context is a pathogenic.

Henry

Anne Williamson wrote:

> 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.
> >
> >
> >