Updated from 1:49 p.m. ESTWall Street is breathing a sigh of relief now that the probe into how securities firms used tainted research to boost stocks during the bull market is over. But the Street still faces its fair share of legal woes. Financial stocks posted strong gains Friday on reports of the much-anticipated settlement. However, Wall Street's problems won't end with the paying of $1.4 billion in fines and other fees. Nor will they stop with the enactment of new reforms aimed at preventing investment bankers from influencing the recommendations of research analysts in the future. That's because the settlement could open the floodgates to a wave of private litigation and arbitrations against Wall Street firms that could clog the courts for years to come. Even though none of the Wall Street firms admitted to any wrongdoing in Friday's settlement with state and federal regulators, the deal won't preclude investors from pursuing their own claims. In fact, New York Attorney General Eliot Spitzer, at a press conference announcing the tentative settlement, said he expected litigation to be the main recourse for investors who feel they were duped by Wall Street's tainted research. "The $1.4 billion is not a cap on liability," said Spitzer. And regulators are giving litigation-minded investors and their lawyers a big leg up by planning to make many of the emails and internal memorandums they've collected from the 10 securities firms available to the public. Additionally, the regulators intend to outline the basis for imposing the fines by releasing a detailed "statements of fact," which essentially will serve as a roadmap for the plaintiff's lawyers. The statement of facts and emails will be made public sometime next year, when regulators formally file a copy of the settlement with each firm in federal court in Washington, D.C. Jacob Zamansky, a lawyer who filed one of the first arbitration cases against a Wall Street analyst, said the planned regulatory document dump is significant because brokerage firms often resist providing investors with access to the firm's internal emails and arbitrators tend to side with the brokers. Mark Maddox, an Indianapolis attorney who usually represents investors in arbitration cases, said, "We don't normally get access to the real smoking-gun type documents and it will significantly enhance those cases that are brought. These fines are going to be a small percentage of the total dollars these firms will wind up paying."
There's no way of knowing just how much Citigroup ( C), Credit Suisse First Boston and Merrill Lynch ( MER) -- the firms that are paying the steepest fines and seen by regulators as the worst offenders -- may be on the hook for individual investors and class-action lawyers. But the continuing fallout from the collapse of Enron could be some guide to the dollars Wall Street may have to pay out. Some Wall Street analysts and securities experts are predicting that the Wall Street firms that helped structure and finance Enron's shady accounting may have to pay up to $10 billion in damages to resolve the dozens of class-action lawsuits that have been filed in the wake of the energy trading firm's bankruptcy. Indeed, the lawsuits and arbitrations against analysts and Wall Street firms were beginning to mount well before a settlement was in the works. The release of investigatory documents will aid the prosecution of those cases too. At last count, Citigroup and its former telecom analyst Jack Grubman have been named in 62 putative class-action cases involving allegations of biased stock research. Merrill Lynch, meanwhile, is a defendant in 150 lawsuits raising similar allegations. Yes, securities firms may have taken steps to clean up some of Wall Street's more unsavory business practices. But they leave behind an enormous paper trail that could come to haunt Wall Street for years to come.