Research Settlement Completed: 2 More Banks Agree To Pay $100 Million Aug, 2004
By Ben White
Washington Post Staff Writer
Friday, August 27, 2004
NEW YORK, Aug. 26 -- Wall Street passed a significant milestone on Thursday, as two investment banks agreed to pay a combined $100 million to settle charges that they published overly bullish research reports on questionable companies to win their investment banking business.
The agreement by the two firms, Deutsche Bank Securities Inc. and Thomas Weisel Partners LLC, completes the landmark "global settlement" of research-related charges first announced nearly two years ago by state, federal and industry regulators and 10 of Wall Street's largest firms.
Under the agreement announced Thursday, Deutsche Bank will pay $87.5 million, including a $7.5 million fine for failing to promptly produce e-mails requested by regulators. Thomas Weisel Partners, a smaller San Francisco-based investment bank, will pay $12.5 million.
Of the $100 million, $30 million will be set aside to return to harmed investors, $30 million will go to state securities regulators, and the rest will be used to pay for investor education programs and the distribution of independent third-party research to investors.
Neither firm admitted or denied wrongdoing as part of the settlement.
The payments by the two firms bring the total value of the global research settlement to $1.5 billion and increase to $429 million the amount to be returned to investors.
The Wall Street research probe began in earnest in the spring of 2002 after New York Attorney General Eliot L. Spitzer disclosed internal e-mails from Merrill Lynch & Co. in which analysts at the firm privately derided stocks they were publicly recommending, referring to the stocks as "junk" and "crap," among other things.
Federal and industry regulators, initially caught flatfooted by Spitzer's aggressive probe, eventually joined forces with him and other state securities officials to investigate all of Wall Street's leading banks.
The joint investigations produced months of damaging headlines for Wall Street at a time when financial firms also came under scrutiny for their role in the mutual fund trading scandal and for assisting in accounting irregularities at failed companies such as Enron Corp.
The 10 firms that agreed to the research settlement last year included Bear, Stearns & Co.; Credit Suisse First Boston LLC; Goldman, Sachs & Co.; Lehman Brothers Inc.; J.P. Morgan Securities Inc.; Merrill Lynch; Morgan Stanley & Co.; Citigroup Inc.; UBS Warburg LLC; and Piper Jaffray Inc.
In addition to fines and disgorgement, all 12 firms involved in the settlement agreed to significantly alter the way they do business, including formally separating their research and investment banking departments.