[A-List] US legitimation crisis: Wall St analysts

["Michael Keaney" <michael.keaney@xxxxxx>]

Banks fear liabilities in Wall Street probe
By Joshua Chaffin and Gary Silverman in New York
Financial Times, December 3 2002

Leading investment banks are battling with US regulators to stave off heavy
legal liabilities that could arise from a settlement of investigations into
Wall Street conflicts of interest.

As the two sides enter final negotiations, the banks are resisting
admissions of wrongdoing and pressing regulators to limit the disclosure of
evidence against them.

The banks fear that investigators' findings included in a settlement could
boost class-action lawsuits filed by investors claiming they were misled by
Wall Street analysts. Investment analysts and legal experts estimate damages
from such suits could exceed $5bn. The regulators, led by Eliot Spitzer, New
York attorney-general, want to provide ammunition for civil suits that could
lead to "restitution" for investors.

"The language of the findings is more critical to the banks than the fines,"
said Marvin Pickholz, a New York securities lawyer. "They need to leave
themselves room to defend themselves from civil litigation."

Regulators hope the talks on a "global" settlement will end soon, setting
the stage for a series of meetings starting on December 11 at which the
banks will learn the final terms of their punishment.

State and federal regulators, led by the Securities and Exchange Commission
and Mr Spitzer, have been investigating whether banks promised overly
optimistic stock research or lucrative initial public offering allocations
to corporate customers to win investment banking assignments.

The two sides have reached a broad agreement on a series of structural
changes to prevent further abuses. The regulators have informed a dozen
banks of fines totalling more than $1bn that are likely to be imposed as
part of the deal. They range from as much as $500m for Citigroup's Salomon
Smith Barney investment banking arm to as little as $50m for a group of
other banks including Goldman Sachs, Deutsche Bank and Morgan Stanley.

This week the regulators are giving the banks a last chance to respond to
specific charges against them. The precise findings in a settlement will be
closely watched because they could indicate whether authorities will bring
charges against individual executives after concluding the broader
agreement.

The settlement talks were threatened last week by the prospect that
California and Massachusetts regulators might break away from the coalition
and continue their own investigations.

But Wall Street's biggest concern has been the language of a settlement and
the implications for lawsuits. Typically, banks avoid acknowledging
wrongdoing when they enter into settlement agreements with regulators such
as the SEC. But Mr Spitzer and Anthony Taggart, Utah's securities
administrator, have pledged to publish the evidence uncovered against the
banks as a way to help investors seek restitution.

As part of the talks, the regulators have begun to supply the banks with
samples of the evidence against them so they will have the opportunity to
defend themselves. This could also help the banks reduce their fines.

The findings against the banks in a settlement agreement could range from
allegations of fraud to less severe accusations, such as failure to
supervise employees.