Credit Suisse First Boston and Goldman Sachs Group Inc. are in talks with the Securities and Exchange Commission to resolve investigations into whether their stock research was compromised by conflicts of interest, according to people familiar with the situation.
Citigroup Inc's Salomon Smith Barney has sought to close out a similar probe by offering to pay a fine and separate investment banking from stock research and allotment of initial public offering shares, people familiar with those talks said. Salomon proposed a fine of more than US$100 million, which regulators said isn't enough, the people said.
SEC Chairman Harvey Pitt wants the settlements to serve as a model for other firms under investigation for allegedly pursuing banking business by recommending stocks and giving sought-after IPO shares to executives, the people said. He's trying to restore investor confidence after the bankruptcies of WorldCom Inc. and Enron Corp -- companies that gave millions of dollars in banking fees to Wall Street firms, which in turn touted their shares.
"Pitt will need a critical mass of major players to agree to a separation of operations for his plan to be viable," said Adam Pritchard, a visiting Georgetown University law professor who was a senior SEC attorney. "Banks won't want to agree to the restrictions if their competitors can hand out IPO shares to attract business, and they can't."
Goldman spokesman Lucas Van Praag declined comment, as did Credit Suisse First Boston spokeswoman Victoria Harmon. Citigroup spokeswoman Leah Johnson didn't return calls. SEC spokesman John Nester declined to comment.
The firms have an incentive to settle because the probes have weighed on their shares. Citigroup's stock has fallen 38 percent this year, while Goldman has dropped 29 percent and CSFB's parent, Credit Suisse Group, has lost 54 percent.
Separating underwriting and advisory work from research and IPO allocations would mark a change for Wall Street firms, which have increasingly demanded analysts issue bullish reports.
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