Updated from 3:58 p.m. ESTSecurities regulators, after weeks of tense negotiations, unveiled a tentative $1.4 billion deal Friday that punishes Wall Street firms for hyping stocks during the bull market and aims to prevent it from happening again. A gaggle of state and federal regulators unveiled the details of the deal at an afternoon press conference at the New York Stock Exchange. The settlement will cost the brokerages around $900 million in fines. The firms also will pay $450 million for buying independent research for investors, and $85 million for a nationwide investor-education program. (Despite the settlement,
Other firms will each pay $50 million in fines. These firms include Bear Stearns ( BSC), Deutsche Bank, Goldman Sachs ( GS), Lehman Brothers ( LEH), Morgan Stanley ( MWD), J.P. Morgan Chase ( JPM) and UBS Warburg.
Merrill Lynch's prior $100 million payment is included in the settlement.
|Settlement Payments |
|Name of firm||Retrospective relief |
|Independent research |
|Investor education |
|Bear Stearns & Co. LLC||50||25||5|
|Credit Suisse First Boston Corp.||150||50||0|
|J.P. Morgan Chase & Co.||50||25||5|
|Lehman Brothers, Inc.||50||25||5|
|Merrill Lynch & Co., Inc.||100*||75||25|
|Salomon Smith Barney, Inc.||300||75||25|
|UBS Warburg LLC||50||25||5|
|* Payment made in prior settlement of Research Analyst conflicts.|
The $450 million the firms are paying for independent research will go into an escrow account that the firms will be ordered to tap into to provide their customers with at least three alternative stock reports when recommending a stock. The firms will be free to buy the reports from any independent research shop that doesn't do investment banking work. Regulators also are enacting new rules that will put additional curbs on contacts between investment bankers and analysts. Analysts will no longer be able to join investment banker on "road shows'' for initial public offerings, nor help their firms recruit potential IPO candidates. The settlement would forbid firms from engaging in a controversial practice known as "spinning," a process in which Wall Street firms to allocate shares in hot initial public offerings to corporate executives of companies that do investment banking business with them. Some Wall Street critics have likened to spinning as a form of bribery. The practice got a big black eye this summer after it was revealed that Citigroup's Salomon Smith Barney investment banking division had dole out shares in hot IPOs to a slew of telecom executives in the 1990s. Another reform would require securities firms to begin tracking the performance of their analysts in picking stocks and periodically provide that information to investors. Regulators said they want investors to be able to determine, which analysts get it right and which analyst don't.