Posted on 05/28/2003 2:18:35 PM PDT by Timesink
By Tim McLaughlin
BOSTON (Reuters) - Securities regulators on Wednesday said they charged former Merrill Lynch & Co. analyst Phua Young with issuing misleading reports on Tyco International Ltd. (NYSE:TYC - news) and accused him of improper conduct, including flying on Tyco corporate jets.
While former Merrill (NYSE:MER - news) analyst and managing director Young touted Tyco's stock between 1999 and early 2002, the conglomerate traded inside information with him and even agreed to hire a private investigator to do a background check on one of his friends, industry regulator NASD said in its civil complaint.
Young, who once described himself in an e-mail as a "loyal Tyco employee," published research reports in early 2002 that contained misleading statements and exaggerated claims that contradicted opinions he expressed privately, NASD said.
"The conduct of this analyst, as evidenced by his own e-mails, gifts to the CEO of Tyco, and favors he received from the company amounted to a betrayal of objectivity and honesty in research," said Mary Schapiro, NASD vice chairman of regulatory policy and oversight.
The NASD said Young also disseminated nonpublic information about Tyco -- the troubled conglomerate whose market capitalization plummeted last year amid an investigation that led to criminal charges against its former chief executive, finance chief and general counsel -- and gave advance notice of proposed ratings to selected institutional clients.
The complaint further charges that Young routinely gave Tyco advance copies of his research reports that included proposed ratings and analyzes. NASD also charged Young with improperly giving a $4,500 case of wine to Dennis Kozlowski, then Tyco's chief executive.
Young flew multiple times on one of Tyco's corporate jets for business trips, often accompanied by Kozlowski, NASD said. On another occasion, Young requested and Tyco retained a private investigator to prepare a background report on one of Young's personal friends.
CHARGES TO BE CONTESTED
"We think the charges are wholly taken out of context," said Young's lawyer, Edward Little. "The NASD makes no effort whatsoever to be fair to Mr. Young."
"We fully intend to fight every one of these charges and see this through to the end," Little said. "We really think that the NASD is over-reaching here."
Young can file a response and request a hearing before an NASD hearing panel. Possible sanctions include a fine, suspension, or expulsion from the NASD.
Young started covering Tyco for Merrill in September 1999 after Kozlowski complained to Merrill CEO David Komansky about the brokerage's research coverage. A criminal indictment against Kozlowski last year by the Manhattan District Attorney's Office in New York made reference to the pressure by the Tyco leader.
Young earned up to $4 million a year at Merrill, according to his lawyer. He worked at Lehman Brothers for 19 years, and was an early bull on Tyco, which he began covering in 1993.
Shortly after Young replaced Merrill analyst Jeanne Terrile, he upgraded the firm's rating on Tyco shares.
Young's cozy relationship with Tyco began almost immediately. Just days before Tyco announced its $1.1 billion acquisition of a Siemens AG (news - web sites) unit on Sept. 28, 1999, Young sent an e-mail to Tyco investor relations asking for information on the deal, according to the NASD complaint.
Young got the information, and a day before Tyco's announcement on the Siemens acquisition, he tipped off an institutional client about the deal, NASD said.
In April 2002, Merrill Lynch said it fired Young for sending research reports to clients without getting approval from the brokerage. Merrill declined comment on the NASD complaint.
Before his dismissal, Young issued research reports that said Tyco's finance arm CIT Group Inc. could fetch up to $8 billion in an asset sale. But in a March 7, 2002 e-mail to a Tyco investment relations employee, Young expressed grave reservations over CIT market value and Tyco's debt.
"I am waiting for $10 (stock price) after Tyco announces the inability to sell CIT for anything near ($8 billion)," Young wrote, according to NASD. "Liquidity crunch, more
distractions, the debt bomb starts to TICK, TICK, TICK."
CIT ultimately sold for $4.6 billion. (Additional reporting by Jake Keaveny in New York)
Looks like there's some Egg on Phua Young's face.
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