Global Billion Dollar Settlement

“These cases reflect a sad chapter in the history of American business — a chapter in which those who reaped enormous benefits from the trust of investors profoundly betrayed that trust. These cases also represent an important new chapter in our ongoing efforts to restore investors’ faith in the fairness and integrity of our markets.” SEC Chairman William Donaldson

“If the Street follows both the spirit and the letter of this settlement, it will change the way business is done on Wall Street. Investors — not investment banking fees — will come first. And analysts will be beholden to the truth, not the IPO business.” NASAA President, Christine Bruenn.


Finally, an ugly chapter in Wall Street’s history comes to a close. With the largest settlement in history being announced, 10 of the largest brokerage firms in the country have agreed to pay a combined $1.4 billion dollars in fines and penalties, to settle allegations by a group of securities regulators.

Those regulators alleged that, from approximately mid-1999 through mid-2001 or later, all of the firms engaged in acts and practices that created or maintained inappropriate influence by investment banking over research analysts, thereby imposing conflicts of interest on research analysts that the firms failed to manage in an adequate or appropriate manner. In addition, the regulators found supervisory deficiencies at every firm.

The enforcement actions, the allegations of which were neither admitted nor denied by the firms, also included additional charges:

The enforcement actions have also resulted in significant modifications of industry practices which may have far reaching effects.

Among other significant reforms included in these actions are the following:

Under the settlement, two former star analysts–Internet expert Henry Blodget of Merrill Lynch and telecommunications analyst Jack Grubman of Citigroup’s brokerage business, Salomon Smith Barney–have agreed to pay $19 million in fines and penalties and be banned permanently from the securities industry to settle fraud charges. Blodget and Grubman are neither admitting nor denying any wrongdoing. Grubman will pay $15 million for undisclosed conflicts. He faces a lifetime ban from working for an investment firm or acting as an investment adviser, dealer or broker. Blodget will pay $4 million

Last May, Merrill Lynch, the nation’s largest brokerage, agreed to a separate settlement that included a $100 million fine and the separation of its analysts from investment banking. Under the settlement detailed Monday, Merrill will pay an additional $100 million toward the independent research fund and an investor education program.

Here is how the $1.4 billion breaksdown by firm:

Salomon Smith Barney, $400 million
Credit Suisse First Boston, $200 million
Merrill Lynch, $200 million
Morgan Stanley, $125 million
Goldman Sachs, $110 million
J.P. Morgan Chase, 80 million
Lehman Brothers, $80 million
Bear Stearns, $80 million
UBS Warburg $80 million
US Bancorp Piper Jaffray, $32.5 million
Total: $1.388 billion

Related Documents:

The SEC Press Release – http://www.sec.gov/news/press/2003-54.htm


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