Conflicts of Interest at Many Big Brokerages

Article excerpt

CONGRESS, regulators, trade bodies and the investment banks have launched separate investigations into the motives and methods of analysts in a widening post-mortem of the 1990s technology share boom.

Dozens of lawyers are also scouring analysts' reports and recommendations in a bid to uncover some error of judgment or fact that could trigger another billion-dollar claim for damages.

A string of damning reports revealing practices that regulators are attempting to stop has systematically debunked analysts' much-vaunted claims of independence.

Wall Street, which has a Florentine flair for preserving its own privileges, is urging Washington to let it put its own house in order through self-regulation rather than legislation.

Merrill Lynch and Credit Suisse First Boston have banned analysts from owning shares in the companies they cover, while Goldman Sachs Group requires its researchers to increase disclosure of their holdings.

Many of the changes proposed by the banks and a list of 13 voluntary guidelines introduced in June by the Securities Trade Association have been dismissed as half-hearted. HSBC's announcement last week that analysts will be required to publish as many "sell" recommendations as "buy" ones, has been enthusiastically received by some hedge fund managers.

Thomas Brown, manager of Second Curve, a hedge fund, says: "It automatically limits the number of stocks an analyst can recommend and gives me a better idea as to which names he really has conviction about."

Richard Baker, whose subcommittee on capital markets is looking at banking practices, says he is "very disturbed" by evidence that conflicts of interest are happening at almost all of the nation's largest brokerage firms. …