October 19, 2002
States investigating national brokerages.
The
New York Times reports on how individual states are proceeding in their investigations of various firms. I knew they were doing this, but didn't realize how they'd divided it all up.
Mr. Spitzer's complaint against Merrill opened the eyes of state regulators to the possibility of assembling similar cases against other firms. Banding together through the North American Securities Administrators Association, they formed a task force and divided up a dozen other firms, with one state taking the lead in investigating each.
Mr. Spitzer took on two other firms with national brokerage operations, Salomon Smith Barney and Morgan Stanley. New Jersey is responsible for Bear, Stearns, Alabama for Lehman Brothers, Texas for J. P. Morgan Chase, Illinois for UBS Warburg, and California for Deutsche Bank and Thomas Weisel Partners.
ADDING to the firms' burdens, each has also been assigned to one of the three national securities regulators Ð the S.E.C., the NASD or the New York Stock Exchange. While the state regulators have been racing through hundreds of thousands of e-mail messages, regulators in Washington have been interviewing executives about their firms' research practices.
The parallel attacks have created "incredible amounts of tension," said Demetrios A. Boutris, the corporations commissioner of California, who threw his support behind Mr. Spitzer in the Merrill settlement talks last spring.
"On the natural, the S.E.C. is more powerful," Mr. Boutris said. "But it is not more powerful right now. Typically, they're ahead of us on the power curve. Right now, they're not. The states have always had powerful laws, but now, because of Eliot Spitzer, they can actually do something about it."
But the SEC and other federal groups are pushing everyone to agree to one simple settlement, so as to end it and let them get back to business-as-usual. You have to be suspicious of any plan the firms themselves support. Such a settlement would pretty much hide each firms' individual crimes behind this general "everybody does it" generalization, and, most especially, stop most attempts to find specific individuals guilty of criminal offenses.
The national regulators have been telling the firms not to cut deals with state regulators until a global agreement has been drawn up, people on Wall Street said. That broad settlement Ð if one can be reached Ð would probably include fines against each of the firms and more independence for their research departments. The firms hope that such a settlement would resolve the entire issue with all regulators.
Ah, the feds are advising the firms on the easiest way to get out of this. Our tax dollars at work. Basically the feds want to keep it entirely a civil matter. This wasn't really theft, and they aren't really criminals. Just honest businessmen who may have made some bad business decisions. That also allows them to keep most of the money. Oh, some fines. But nothing like what they stole. And no one goes to jail.
