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U.S. Justice Dept. May Be Probing Wall Street Firms, Analysts

Criminal Charges Could Be Filed…

If Conflicts of Interest Are Found; NY State Widens Probe

SEC Launches Formal Probe of Wall Street Research

PHOENIX, Apr. 23 - Oopsie-daisy!  We hear Uncle Sam’s gumshoes may be sneaking around Wall Street, trying to sniff out and smoke out “independent” analysts who get too cozy with their employer’s investment bankers, and too close to their research subjects.

Michael Chertoff, head of the Justice Department’s criminal division, told Bloomberg News today (Apr. 23) that criminal charges are possible if investigators find that research analysts tilted their "buy" and "hold" recommendations to help their firms win investment-banking business.

"We're going to be doing a lot of cases involving financial reporting," Chertoff told Bloomberg. "The way they disseminate and handle the information of publicly traded companies seems to me to be one of the front-burner white-collar enforcement issues for the next several years.''

But Bryan Sierra, a spokesman for the Justice Department, tried to play down the news.  While acknowledging that a preliminary investigation was under way, he told Bloomberg, "we're not investigating anything yet."

Typical… for PR spinsters.  “See no evil, hear no evil, speak no evil!”  That just about sums up their spin on news.  Until an Enron smacks them in the face and send them spinning around red-faced.

A couple of weeks ago, we told you about the New York State Attorney General taking a swipe at Merrill Lynch over its analysts’ talking out of both sides of their mouths (see … “A Shocking Betrayal of Trust”, Apr. 8, 2002): 

"This was a shocking betrayal of trust by one of Wall Street's most trusted names," Mr. (Eliot) Spitzer said. "The case must be a catalyst for reform throughout the entire industry."

The state attorney general released a number of internal e-mails sent by Merrill Lynch staff, which it said raised concerns about conflicts of interest. The e-mails indicate that analysts privately disparaged companies while publicly recommending their stocks.” [...]

Unlike the Feds’ snail pace of reacting to events, Spitzer has since widened his probe.  He has reportedly also subpoenaed records from other top Wall Street firms, including Credit Suisse First Boston, Morgan Stanley, Goldman Sachs, Salomon, UBS PaineWebber, and Lehman Brothers.

Meanwhile, Merrill has agreed to greater disclosure of its possible conflicts as it tries to settle the New York charges, hoping to avoid a $100 million fine.

One almost down, how many more to go? (see the cartoon at our web site)

To read the full Bloomberg story as reported by the CBS Market Watch, click here at our web site.

Happy bargain hunting!

Bob Djurdjevic

A "PS" to the Apr. 23 Annex Newsflash... 

SEC Now Also Taking a Swipe at Wall Street Research

SEC Launches Formal Probe

Share of Wall Street Brokerage Firms Tumble in Late Trading

PHOENIX, Apr. 25 - Boy, looks like "everybody" is now suddenly getting into the act and taking a swipe at Wall Street research. In an usual move for an agency that supposedly doesn't disclose its investigations, the SEC said this afternoon in a statement that it is probing Wall Street's research practices.

Two days ago, we told you about the Justice Dept.'s considering possible criminal actions against Wall Street firms and analysts suspected of being involved in research scams.

Since the SEC news broke late this afternoon, shares of Wall Street brokerage firms have taken a tumble. Morgan Stanley, fell 5.6%, or $2.86, Merrill Lynch slipped 4.8%, Lehman Brothers slid 3.7%, or $2.24, Goldman Sachs shed 2.9%, or $2.28, etc.

Here's an excerpt from the Reuters newswire which we've also posted at our web site as a "PS" to our subject Annex Newsflash

SEC Unveils Probe of Wall Street Research

Thu Apr 25, 951 PM ET

WASHINGTON (Reuters) - Top securities regulators said on Thursday they have launched a formal investigation into whether Wall Street misled investors by issuing biased, overly bullish research reports to bring in lucrative investment banking business.

The late afternoon announcement... came one day after a meeting between SEC Chairman Harvey Pitt and New York State Attorney General Eliot Spitzer. [...]

The SEC said it is conducting the probe with the help of the New York Stock Exchange, the National Association of Securities Dealers, Spitzer and state securities regulators. "The SEC has commenced a formal inquiry into market practices concerning research analysts and the potential conflicts that can arise from the relationship between research and investment banking," the SEC said in a statement, notable for its rarity.

"The recent disclosures that resulted from the investigation by the New York State Attorney General, as well as the practices uncovered by the staff of the SEC, the NYSE and NASD, reinforced the commission's conclusion that further inquiry is warranted," the SEC's statement said.

Pitt, the SEC chairman, called the probe "the next step -- and a critical one -- in the commission's year-long review of analyst practices," according to the statement. [...]

Etc. [...]

For the full Reuters story, click here.

[Also see…IBM: A Disastrous Quarter! (Apr. 17),  “A Shocking Betrayal of Trust” (Apr. 8, 2002),  “SEC to Tighten Stock Option Rules” (Apr. 5, 2002), "Sir Lou OutLayed Lay!" (Apr. 1, 2002), "IBM Pension Fund Vapors," (Mar. 23, 2002), Is IBM Cheating on Taxes, Annex Bulletin 99-17 (May 1999),  Fortune on IBM (June 15, 2000)Annex Bulletin 98-14 ("Wag the Big Blue Dog"), Armonk's Fudge Factory (Apr. 9, 1999)Where Armonk Meets Wall Street, Greed Breeds Incest (November 1998)Stock Buybacks Questioned: Is IBM Mortgaging Its Future Again?, 97-18 (4/29/97),  "Some Insiders Cashed In On IBM Stock's Rise, Buybacks" 97-22, 7/27/97,  Djurdjevic’s Forbes column, "Is Big Blue Back?," 6/10/97;  “Executive Suite: How Sweet!,” (July 1997), "Gerstner: Best Years Are Behind", Aug. 10, 1999), "IBM's Best Years Are 3-4 Decades Behind Us" (July 1999), "Lou's Lair vs. Bill's Loft" (June 1999),  "Corporate Cabbage Patch Dolls," 98-39, 10/31/98; Djurdjevic’s Chronicles magazine October 1998 column, "Wall Street Boom; Main Street Doom" etc.].

Or just click on and use "financial engineering" as keywords.


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Volume XVIII, Annex Newsflash No. 2002-04
April 23, 2002

Editor: Bob Djurdjevic
Published by Annex Research

P.O. Box 97100, Phoenix, Arizona 85060-7100
TEL/FAX: (602) 824-8111

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