Punishing Corporate Corruption

The Washington Times (Washington, DC), May 5, 2003 | Go to article overview

Punishing Corporate Corruption


Byline: THE WASHINGTON TIMES

There is one big consolation from the meager $1.4 billion in fines and payments extracted from 10 wayward Wall Street firms by the Securities and Exchange Commission (SEC), other regulatory agencies and state officials in the recently concluded "global settlement." Such a pittance of a penalty will hardly dent their bottom lines, built up during the stock market's bubble years; and if there is any justice, it will be these funds that will be available to partially compensate the individual investors who lost hundreds of billions of dollars by acting on the fraudulent stock recommendations hawked by the Wall Street firms' self-dealing "analysts."

Analysts and bankers were for years operating in cahoots to the eventual detriment of their stock-trading clients. As internal e-mails published months ago confirmed, these clients were repeatedly given relentlessly upbeat reports about stocks that analysts routinely disparaged in private as "pigs," "dogs" and worse. As newly installed SEC Chairman William Donaldson rightly noted, "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."

Sadly, the roll call of the nefarious with their fines and penalties in parentheses includes most of Wall Street's biggest securities firms. Charged with "issu[ing] fraudulent research reports" were Citigroup's Salomon Smith Barney ($400 million), Merrill Lynch ($200 million) and Credit Suisse First Boston (CSFB) ($200 million). Separately, Bear Stearns ($80 million), Goldman Sachs ($110 million), Lehman ($80 million), Piper Jaffray ($32.5 million), UBS ($80 million), Salomon and Merrill Lynch were accused of "issu[ing] research reports that were not based on principles of fair dealing and good faith and did not provide a sound basis for evaluating facts." Salomon and CSFB were charged with inappropriate spinning of "hot" initial public offering allocations in order to gain future investment-banking revenues. …

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