US SEC edges to vote on Wall St analyst settlement

Wed April 23, 2003 06:26 PM ET
By Kevin Drawbaugh
WASHINGTON, April 23 (Reuters) - The U.S. Securities and Exchange Commission has set another closed-door meeting for Thursday to continue discussions over a long-awaited, $1.4 billion settlement in the Wall Street analyst scandal.

An up-or-down vote on the settlement could finally occur at the morning meeting, but sources familiar with the matter said again that the SEC has not yet fixed a firm date for a vote.

With a final decision by the SEC on the settlement viewed as imminent now for several days, Arizona Republican Sen. John McCain issued a statement on Wednesday saying he was "concerned about several of its expected provisions."

"In particular, I am still troubled by the insurance and tax aspects of the proposed agreement," McCain said, reiterating concerns also voiced recently by Iowa Republican Sen. Charles Grassley and Montana Democratic Sen. Max Baucus.

The settlement -- involving 10 major brokerages, the SEC, the stock exchanges, and a host of state securities regulators -- is designed to bring to a close one of the most embarrassing and damaging episodes in Wall Street's history.

Probes by New York State Attorney General Eliot Spitzer, other state regulators and the SEC have alleged some analysts -- mainly during the 1990s technology and telecommunications stock bubble -- issued slanted company research to help drum up investment banking business for their brokerages.

The SEC discussed, but did not vote, on the settlement at a lengthy closed-door session on Tuesday. Sources said approval was still expected this week, possibly with a formal announcement in Washington on Monday.

But in his statement, McCain said, "I understand that the SEC has delayed its vote on the global settlement agreement until next week."

SEC Chairman William Donaldson declined to discuss the settlement when asked about it on Wednesday at an unrelated commission hearing. An SEC spokesman declined to comment.

Under the terms of the settlement as unveiled in December, Citigroup, Morgan Stanley MWD.N , Goldman Sachs GS.N , Credit Suisse Group CSGZn.VX CSR.N and other brokerages agreed to pay $900 million in fines and restitution, $450 million to fund independent research and $85 million for investor education.

Merrill Lynch & Co. MER.N agreed to pay $100 million toward investor education and independent research, in addition to a $100 million penalty it agreed to pay earlier.

Eleventh-hour debate has continued over whether the brokerages may deduct part of the settlement cost from their taxes or get their insurers to pick up part of the tab. McCain, Grassley and Baucus have said they want the SEC to ensure that the brokerages will not be able to pursue these options.

It is unclear how the settlement will be worded and how much evidence from the investigations will be disclosed afterward -- both key factors in determining how exposed the brokerages will be later to private litigation.

To bolster the integrity of research in the future, the brokerages have agreed to take steps such as shoring up organizational barriers to shield analysts from other departments and to ban the practice, known as "spinning," of giving top corporate clients the inside track on hot initial public offerings.