SEC Wants Wall Street Allegations Settled
Jun. 17, 2003
NEW YORK (AP) _ Government regulators urged a federal judge on Monday to accept their plan to have 10 Wall Street firms and two analysts pay $1.4 billion to settle allegations of biased stock ratings.
The Securities and Exchange Commission called the settlement plan ``fair, reasonable and adequate'' in a filing before U.S. District Judge William H. Pauley in Manhattan.
Federal and state regulators announced the settlement in April, aiming to restore investor confidence. It includes one of the largest penalties ever handed down by the SEC.
But the deal hinges on Pauley's approval. The judge said last month he wanted more information on how the settlement money would be returned to investors and used to educate the public and pay for independent research.
In a 24-page response, the SEC suggested a court-appointed administrator should decide who should get payouts from the settlement and in what proportion.
Responding to the judge's question about what happens if one or more of the 50 states rejects their portion of $488 million in settlement money earmarked for the states, the SEC said it had no information that any state planned to opt out.
Even if a state did reject its settlement offer, it would not affect the rest of the settlement, the SEC said.
The commission also said it believed the settlement money could be paid to investors based on records the firms already have _ without asking investors to provide much more information.
``Quickness and ease of administration are important considerations,'' the SEC said in its filing, which was signed by James Meyers, the commission's assistant chief litigation counsel for enforcement.
The deal was designed to settle allegations that some of Wall Street's biggest firms _ including Citigroup, Merrill Lynch and Credit Suisse First Boston _ issued biased ratings on stocks to lure investment banking business.
Under the proposed settlement, the 10 firms would pay nearly $400 million for distribution to investors who lost money on specific stocks recommended by the firms. The administrator would specify which investors should get money, and how much, within nine months after the court approves a distribution plan.
Mutual funds could get payouts under the settlement and pass them on to specific clients, the SEC suggested Monday. Mutual fund investors could not get payouts directly from the fund.
The firms would also spend $80 million on an investor education program and pay about $430 million over five years for independent stock research for their customers.
Two former star analysts _ Internet expert Henry Blodget of Merrill Lynch and telecommunications analyst Jack Grubman of Citigroup's Salomon Smith Barney brokerage _ also agreed to pay a total of $19 million in fines as part of the settlement.
Pauley has not indicated when he might issue a final ruling.
Meanwhile, the SEC is considering toughening its penalties generally in future settlements with companies, brokerage firms and individuals as a way to deter wrongdoing, a person familiar with the matter said.
Changes being weighed include requiring defendants to admit guilt in settlement agreements _ a sharp departure from SEC practice _ and making them pay the full amount of penalties themselves, so that their insurers wouldn't cover any of the cost. The SEC's examination of the issue is still in early stages, the person said, speaking on anonymity and confirming a report in Monday's Wall Street Journal.
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