Citigroup Inc, Credit Suisse First Boston and eight rival securities firms will pay US$1.4 billion to settle charges that analysts published misleading stock research in a bid to win investment-banking business.
The settlement, the biggest ever for violating securities laws, alleges that Citigroup, CSFB and Merrill Lynch & Co committed fraud. It also bars former analysts Jack Grubman and Henry Blodget from the industry.
Investigations are continuing, focusing on analysts' supervisors, said Stephen Cutler, head of enforcement at the Securities and Exchange Commission.
"We have seen how crass this system was and we are releasing documentation that will prove how far up the food chain the deception flowed," said New York Attorney General Eliot Spitzer, who led the probe by state and federal authorities.
"Before we began this, we were living in a world where small investors were led astray. That was a reality that destroyed lives," he said.
The disclosure of thousands of e-mails and other internal memos that shed light on how Wall Street firms touted stocks to lure investment-banking clients is likely to provide ammunition for shareholder suits that lawyers say could add billions more to the costs. State regulators, the SEC, and the New York Stock Exchange released thousands of pages of documents on Monday in the case, weighing more than 15kg.
The pact overhauls how Wall Street supervises and compensate researchers. The 10 investment banks are required to limit contact between bankers and researchers and barred from letting bankers influence how analysts are paid.
"The investment bankers who claimed they were uniquely capable of handing these conflicts of interest have proved to be uniquely incapable," Spitzer said.
The firms neither admitted nor denied guilt in the agreement with the SEC, NASD, New York Stock Exchange and state securities regulators.
The settlement stems from Wall Street's role in the boom in stock prices in the late 1990s and the subsequent bust that has erased more than US$7 trillion of shareholder wealth in the past three years.
Analysts such as Merrill Lynch's Blodget and Citigroup's Grubman earned tens of millions of dollars from recommending stocks that they privately disparaged. Blodget and Grubman paid US$19 million in penalties in addition to being excluded from the securities industry.
Citigroup will pay US$400 million, the largest penalty. Credit Suisse and Merrill Lynch will pay US$200 million each, Morgan Stanley will pay US$125 million, Goldman Sachs Group Inc will pay US$110 million, Lehman Brothers Holdings Inc, J.P. Morgan Chase & Co, Bear Stearns Cos, and UBS Warburg will pay US$80 million each, and US Bancorp Piper Jaffray will pay US$32.5 million.
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