Posted on 10/23/2002 4:06:29 AM PDT by Liz
Wall Street's top 10 firms are descending on Washington tomorrow to hear proposals from federal and state regulators who've been probing their conflicts of interest for months.
The firms, including Goldman Sachs and Citigroup, are sending their top lawyers to Washington to hear proposals from the Securities and Exchange Commission and the New York attorney general's office about ways to change how they conduct stock market research.
The two sides are meeting as a single group for the first time. They hope to work towards a framework to separate research from investment banking that works for all of them.
"That's very refreshing," said William Benedetto, chairman of Benedetto, Gartland, a boutique investment bank. "It's got the potential for a practical resolution of the issue of how to find the appropriate checks and balances between research and investment banking."
Wall Street research has come under intense scrutiny in the last year, as investigators found that some analysts pumped up stocks of investment banking clients while others funneled hot stocks to those clients.
Attorney general Eliot Spitzer turned up e-mails at Merrill Lynch which showed some analysts publicly supported companies they privately criticized. Without admitting wrongdoing, Merrill settled for $100 million.
The discussions tomorrow are unlikely to include specific penalties.
Salomon Smith Barney, which is facing allegations that former star telecom analyst Jack Grubman directed hot stocks to company execs, and Credit Suisse First Boston will both likely face some fines, experts said.
At the talks tomorrow, which will include securities officials from Massachusetts and Utah, regulators are expected to present proposals and solicit feedback.
The firms already have some differences of opinion.
Morgan Stanley is unwilling to pay a fine if it didn't do anything wrong, people familiar with the firm said. The company also doesn't want to give up its research department.
Wall Street bankers said researchers can help screen potential clients, helping their firms calculate how a prospect would be received if it sold stock to the public.
Those who plan to attend the meeting hope the two sides can agree soon on a new set of rules that will reform Wall Street and restore public confidence in the markets.
Deutsche Bank, Merrill Lynch, UBS Warburg, Lehman Brothers, Bear Stearns, Morgan Stanley, J.P. Morgan Chase, Citigroup, Goldman Sachs, and Credit Suisse First Boston are all expected to send their general counsel or top lawyers.
Regulators and company officials declined comment.
That being said, be certain to notice that two names you will never hear will be "Corzine" and "Rubin". just predictin'...fsf
Nicholas Maier, who was syndicate manager of the Wall Street firm Cramer & Co. from1996 to 1998, told SEC investigators in the spring that Goldman Sachs routinely forced him to buy stocks at inflated prices if he wanted to purchase shares of an initial publicoffering (IPO).
"Goldman, from what I witnessed, they were the worst perpetrator," Mr. Maier said. "They totally fueled the [market] bubble. And it's specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation —manipulated up, and ultimately, it really was the small person who ended up buying in."
For example, Mr. Maier told the SEC that Goldman Sachs would offer him shares of a new company's IPO at the initial, low price of $20 per share only if he agreed to purchase"aftermarket" shares of the same company at $100 each. In turn, he would sell the shares of the higher-priced stock to small investors.
"None of these aftermarket orders had anything to do with what I honestly valued acompany to be worth," Mr. Maier said. "Goldman created the convincing appearance of a winner, and the trick worked so well that they seduced further interest from other speculators hoping to participate in the gold rush.
The general public had no idea that these stocks were actually brought into the world at unnaturally high levels through illegal manipulation."
A class-action lawsuit filed in April 2001 accused Goldman Sachs and others of engaging in "laddering" on the initial sale of stock of NetZero, driving up the company's share price to artificially high levels.
In another class-action suit, shareholders of Buy.com have accused the firm and its underwriters, including Goldman Sachs, of engaging in a laddering scheme in its IPO in February 2000, after Mr. Corzine left Goldman. And investors of defunct online grocer Webvan.com have filed a similar suit in federal court concerning that firm's initial public offering in November 1999.
Another class-action suit filed last year says that underwriters, including Goldman Sachs, manipulated several IPOs since 1997, including at least six when Mr. Corzine was still at the helm of Goldman.
The CNBC relationship allegedly worked both ways, with Cramer making trades based on information he gleaned from the on-air talent. One tale that came up during the trader's interview with assistant U.S. attorneys involved profit made on Salomon Inc. just before an announcement that the investment bank was being bought by Travelers Group in September 1997. The trader recalls Cramer saying, "That's one for Faber."
This seems to have dropped off the radar. Maybe Cramer's friendship with Spitzer is trumping the U. S. Attorney's investigation.
Maybe not. Look at how long it took 'em to nab Fastow and Waksal. And Lay and Skilling are still at large.
fsf: Excellent point. I've wondered that, too.
Nice take FSF. I surmise there are possibly several variations of wrongdoing and shady stuff going on here, collusion, one hand washing the other, kickbacks, etc. Let's just pray the cuckolded investors (unsuspecting "schnooks") see some justice.
LOL Princess. You can do my trades anytime.....and don't forget Weill.
This Princess would love to attend the pow-wow. My invitation must be lost in the mail. Sigh.
Yet another NooJoisey Senate RAT to take down post-November 5th...our work is never done...LOL!!
FReegards...MUD
BTW...any of y'all gonna be in DeeCee on Saturday?
Tough to keep the primary focus on so many RAT Fraud Schemes at once, but we've got time on our side!!
FReegards...MUD
Where was Clinton's SEC when all these crimes were being committed?! Is Dereliction of Duty a Felony?!
FReegards...MUD
With regard to the SEC & Clinton - everything was excused because the stock market was through the roof. Irrational exhuberance trumped brains. The SEC didn't want to interfere with Clinton's legacy.
True. Good people would not discuss the Clinton crimes of state b/c their stock portfolios never looked so good. These same people are now crying the blues, of course.
Yer Right, of course...still, after eight years of lawlessness by RAT contributors, Justice's gotta lotta catchin' up to do!!
"With regard to the SEC & Clinton - everything was excused because the stock market was through the roof. Irrational exhuberance trumped brains. The SEC didn't want to interfere with Clinton's legacy."
Well said...too bad fer the RATS, though...Clinton's Legacy is toast anyway!!
FReegards...MUD
Good people, my arse!! These folks are spineless scumbags and marginal Americans...let them eat cake!!
FReegards...MUD
Then again, I DO like singin' the blues...LOL!!
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