The weapons of mass destruction that Wall Street fears most these days aren't the ones supposedly hidden in Iraq, but the slew of emails and internal reports that were turned over to securities regulators in the past year.
$1.4 billion Wall Street settlement, the incriminating emails that securities regulators used to build their case against Wall Street firms now will get a second life, serving as ammunition for private lawsuits brought by disgruntled investors. And the reverberations from those emails may be felt for some time, because there's plenty of evidence for private lawyers to mine.
To get some sense of the magnitude of this regulatory document dump, consider the exhibits filed by New York Attorney General Eliot Spitzer in his investigations of
. The six volumes filed by Spitzer in those inquiries stand eight inches high.
Now while some of the exhibits, such as copies of old research reports, will be of minimal use to investors seeking to recoup their losses, others may be like manna from heaven. Especially those emails and documents that illustrate how Wall Street's drive for investment-banking business caused it to tailor and slant its stock research and issue bullish reports -- even when such reports weren't warranted.
For example, there's the email sent in 2000 by an unidentified Goldman Sachs analyst to an investment banker, seeing if the two could coordinate their efforts in trying to secure investment-banking work from
, a software support company now called
. In the email, the analyst writes: "I wanted to harmonize with you strategically. I've been successful in the past using my research efforts to cement relationships where we previously had none."
Or there's a copy of a performance review for Morgan Stanley Internet guru Mary Meeker, in which the high-profile analyst is praised over and over again for helping to drive investment-banking work to the firm.
Other emails show the two-faced nature of many of the analysts who were pumping up stocks during the bull market. A
analyst, for instance, characterized the stock of
as "dead money" in a private email, even though the firm rated that stock of the software firm as "buy" at the time.
Some of the documents released by regulators simply will serve to reinforce the investing world's worst opinions of some analysts as nothing more than corporate shills, who are willing to do whatever it takes to get investment-banking work for their employers. That's how former Citigroup telecom analyst Jack Grubman comes across in this 1999 letter to then
Chief Executive Michael Armstrong: "Once I'm on board there will be no better supporter than I. As I indicated to you at our meeting, I would welcome the role of being a 'kitchen cabinet' member to you.
Grubman sent that letter after an Aug. 5, 1999, meeting with Armstrong, which had been arranged by the Citigroup Chairman and Chief Executive Sanford Weill. The meeting came about during a time that Weill had urged Grubman to take a "fresh look" at his then negative rating on AT&T shares. Grubman would later up his rating on AT&T shares to a "buy."
These are just a few examples of what lurks inside the documents regulators are making public. But for angry investors and their lawyers, it should prove to be a fruitful digging expedition.