Wall Street's Loss Won't Be Your Gain

Securities regulators are about to carve their pound of flesh out of Wall Street. But if you lost money in the debacle of the last decade and think you're about to get something back, think again.

After months of dickering and negotiations, the nation's largest securities firms are about to sign off on terms and specific charges in a landmark settlement of charges that their stock research was warped to suit investment bankers rather than retail investors. The firms are expected to pony up a total of $1.4 billion to settle with New York Attorney General Eliot Spitzer, say people familiar with negotiations.

In other words, the checks from Wall Street will soon be in the mail. But they won't be coming to you. Investors -- the main victims of the shoddy and conflicted research -- will get close to nothing from the much ballyhooed settlement.

The $1.4 billion settlement was never intended to compensate individual investors, the ones who were burned holding erstwhile Internet high-flyers like Amazon(AMZN) and Yahoo(YHOO) during their gut-wrenching descent or took losses when relative blue-chips like Microsoft(MSFT) or Intel(INTC) saw their success stories derailed. The regulators said as much when they first announced the broad parameters of the deal last December.

Instead, the government sees private litigation and arbitration as the main avenue of investors recompense. The final settlement, as well as reams of evidence that was aired in Spitzer's long-running, high-profile probe, may provide investors with legal ammunition to pursue their claims.

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The information to be made public will probably include some of the internal emails in which analysts raised private doubts about stocks they were touting to the public. Other evidence may show how investment bankers put pressure on research analysts to keep hyping lame stocks in order to win new investment banking business.

But if the past is any indication, neither arbitration nor private lawsuits are likely to make investors whole. To read more about the pros and cons of arbitration, click here. For the lowdown on class-action suits, click here.

As for Spitzer's deal, the math is sobering (you may want a drink). Even if you divide up the $450 million earmarked for investor restitution among the estimated 50 million U.S. households that invest in the stock market -- and that was never the plan -- the typical household would stand to collect all of $9. That amounts to about three Happy Meals at McDonald's.

Who Gets the Money

But only $450 million of the $1.4 billion is even earmarked for investor compensation. And who gets that? The government. The money first goes to the Securities and Exchange Commission and the NASD, which are supposed to decide how to hand it out to investors.

Neither has said what it plans to do, and it's hard to see how they'd go about the overwhelming job of deciding who is entitled to money.

"I don't think it's possible," said Donald Langevoort, a securities professor at Georgetown University School of Law. "I'm skeptical that this is going to be worth it."

How Even the Leading New Economy Stocks Ruined Investors
Stock	High 2000	Low 2001-2002	Percentage Decline
Amazon.com	75.25	5.51	98.7%
Cisco Systems	82	9.42	88.5
Corning	113.33	1.30	98.9
JDS Uniphase	297.34	1.64	99.4
Lucent Technologies	74.93	0.71	99.1
Nortel Networks	143.62	0.45	99.7
Priceline.com	165	1.37	99.2
Yahoo.com	238	8.45	96.4
Source: A Random Walk Down Wall Street, Eighth Edition