Top 10 brokerages to pay $1.44 billion

Posted: Saturday, December 21, 2002

NEW YORK - The nation's 10 biggest brokerages agreed Friday to pay $1.44 billion and fundamentally change the way they do business to settle allegations they misled investors by hyping certain companies' stocks.

The moves are aimed at restoring public confidence in the stock recommendations made by Wall Street firms.

The settlement calls for the firms - including Citigroup, Goldman Sachs and Credit Suisse First Boston - to pay steep fines; separate their stock-research and investment-banking operations entirely; and pay for independent stock research that would complement their own analysts' work.

Federal and state regulators began investigating the brokerages after small investors lost millions of dollars on stocks that analysts had advised them to buy but had privately ridiculed. Investigators say the brokerages hyped the stocks of companies they wanted as investment banking clients.

In agreeing to the fines, the brokerages neither admitted nor denied the charges.

"Every investor knows that the market involves risk," said New York state Attorney General Eliot Spitzer, who led the inquiry.

Citigroup's Salomon Smith Barney brokerage unit will pay the largest fine: $300 million. But Citigroup chief executive Sanford Weill won a guarantee he would not be prosecuted.

Credit Suisse will pay $150 million. Goldman Sachs, J.P. Morgan Chase, Bear Stearns, Morgan Stanley, Lehman Brothers, Deutsche Bank and UBS Warburg will each pay $50 million.

In May, Merrill Lynch, the nation's largest brokerage, agreed to a settlement that included a $100 million fine and the separation of its analysts from investment banking.

Spitzer uncovered documents and e-mails showing that Merrill Lynch analysts privately used words like "disaster" and "dog" to describe some stocks while publicly recommending that investors buy the companies' shares.

The amounts of the fines were based on the evidence collected against the firms, officials said. It was not clear how much of the fines will go to a restitution fund for investors.

Spokesmen for the firms did not immediately respond to requests for comment.


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