Brokerages Agree to $1.4 Billion Settlement; Reforms Ordered in Securities sales.(PAGE ONE)

The Washington Times (Washington, DC), December 21, 2002 | Go to article overview

Brokerages Agree to $1.4 Billion Settlement; Reforms Ordered in Securities sales.(PAGE ONE)


Byline: Patrice Hill, THE WASHINGTON TIMES

Wall Street's largest investment houses yesterday agreed to major reforms and a record $1.4 billion in fines and investor restitution to settle charges they deceived clients to gin up profits.

The agreement, won by federal and state securities regulators investigating abuses on Wall Street that contributed to the 1990s stock market bubble, orders the most significant restructuring of the securities business since the securities laws were enacted in the 1930s.

"Every investor knows that the market involves risk," said New York Attorney General Eliot Spitzer, who led the investigations and embarrassed the big banks by revealing internal e-mails in the spring that showed they were trashing many high-tech stocks privately even as they touted them to investors.

"Nobody expects a guaranteed profit. But what every investor expects and deserves is honest investment advice - advice and analysis that is untainted by conflicts of interest," he said at a news conference at the New York Stock Exchange, where the settlement was announced.

Merrill Lynch, Citigroup, Morgan Stanley, Bear Stearns and other big brokerages that often have lured small investors with promises of integrity, safety and profits, must erect a wall between employees who provide investment advice and investment bankers whose job is to raise fees through the sale of stocks and bonds for corporate clients.

The brokerages also are prohibited from giving corporate clients first shot at buying new stock offerings, a practice known as "spinning" that enabled CEOs such as Bernard Ebbers of WorldCom Inc. and Meg Whitman of EBay Inc. to make millions in profits not available to ordinary investors.

Mr. Spitzer's aggressive inquiry into industry abuses since 2001spawned other state investigations and forced the Securities and Exchange Commission to open a broad inquiry in April.

After complaints from Wall Street, the regulators agreed this fall to seek a universal settlement that would not impose a state-by-state patchwork of regulations on the industry.

Negotiated by SEC enforcement chief Steven Cutler and outgoing SEC Chairman Harvey Pitt, the pact still must be approved by the full commission before taking effect.

Mr. Spitzer said he expects the settlement will "permanently change the way Wall Street operates." Regulators also hope it will help to restore the trust of small investors disillusioned by revelations of deception and unfair dealing on Wall Street.

"This settlement marks a vital step in restoring investor confidence," said Robert R. Glauber, chairman of the National Association of Securities Dealers. "It underscores that the industry's highest duty is to investors."

New York Stock Exchange Chairman Richard Grasso said reviving trust is crucial if regulators are to help lift stocks out of the deep funk that has led to three straight years of losses since the stock market peaked at the end of the bubble era in March 2000.

Announcement of the settlement helped to spur a stock rally yesterday, particularly among the battered shares of the financial firms. …

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Brokerages Agree to $1.4 Billion Settlement; Reforms Ordered in Securities sales.(PAGE ONE)
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