Goldman Flap Puts Feds Back in Spotlight

Citigroup, sources say, was not included as a defendant in the lawsuit because Spitzer didn't want to poison the talks with Pitt about formulating a common regulatory approach.

Muddy Waters

But now that's there's an agreement between the two regulators to work together, does that mean Spitzer will hold off permanently on naming Citi as a defendant? Does that mean Goldman, CSFB and other Wall Street firms also have nothing to fear from Spitzer while the talks between the regulators continue.

A Spitzer spokesman declined to comment.

The common plan of action, meanwhile, also doesn't address a NASD proposal that would expressly prohibit Wall Street firms from engaging in spinning. The proposed regulation makes it clear that IPOs should not be used as a potential lure for reeling in new investment banking clients.

Again, it's not known whether Pitt and Spitzer intend to go beyond what the NASD is proposing, or simply adopt it.

It's worth noting, however, that some state securities regulators think the NASD proposal does nothing more than restate the current law. The North American Securities Administrators Association, in a recent letter to the NASD, notes that the proposal prohibits conduct that already is "unlawful as fraud under both the state and federal securities laws."

If that's the case, then it seems Pitt and Spitzer will have to come up with something a lot tougher than what the NASD is proposing if they really want to change the way Wall Street does business.

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