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

["Anne Williamson" <annewilliamson@xxxxxxx>]

On this, Henry, we agree - Fedgov is indeed "pathogenic." - A.

----- Original Message -----
From: Henry C.K. Liu <hliu@xxxxxxxxxxxxxx>
To: <a-list@xxxxxxxxxxxxxxxxxxx>
Sent: Tuesday, May 21, 2002 6:04 PM
Subject: Re: [A-List] Operation Restoring Investor Confidence:
Merrill-Spitzer Settlement


> 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.
> > >
> > >
> > >
>
>
>