Now that the biggest firms on Wall Street have agreed to pay US$1.4 billion to end investigations into the behavior of their stock analysts, some are trying to get their insurance firms to write the checks.
Representatives of two big insurers, the American International Group and Chubb, have asked the regulators who are drawing up the final settlement to include a clause that states the firms must pay the penalties themselves, people involved in the negotiations said Friday. Citigroup, which agreed to a US$300 million fine and another US$100 million in payments, is among the firms hoping to recover at least part of its share of the settlement, the people said.
Some regulators, including Eliot Spitzer, the attorney general of New York, said they favor the clause because letting the firms pass on their punishment would violate the spirit of the pending agreement.
Eleven securities firms agreed in principle last month to pay US$800 million in fines and more than US$500 million in other penalties to state and federal regulators who have been investigating the conflicts of interest of stock analysts. The regulators had hoped to have an agreement by the end of January, but that process has been delayed by disputes about several issues, including whether insurance would or should cover the firms' costs.
Spitzer has made his position clear: ``As a matter of public policy, fines and penalties should not be recoverable from any insurance policy,'' he said in a statement read by a spokesman.
The part of the settlement that would go to state regulators is likely to be described as fines and end up in state treasuries, people involved in the negotiations said.
But lawyers for some firms said they think that at least some of the settlement money may be recoverable from their insurers, people involved in the negotiations said. One reason is that the Sarbanes-Oxley Act, the overhaul of corporate fraud, accounting and securities laws that Congress passed last year, calls for fines collected by securities regulators to go back to investors who were harmed.
Restitution money to investors, like damages awarded in court, can be recovered under certain types of insurance policies, lawyers said. Fines and other penalties levied by government agencies often are not recoverable, they said.
Some firms have said that they do not expect to receive any of their settlement back from insurance companies. Lehman Brothers Holdings took an US$80 million charge against its earnings, before taxes, for the fourth-quarter of its 2002 fiscal year.
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