Citigroup Inc. and
Goldman Sachs Group Inc. were among 10 banks fined for failing to shield analysts from pressure to promote stocks a decade after a U.S. crackdown sought to end Wall Street conflicts of interest.
The investment banks promised favorable research to Toys “R” Us Inc. and its private-equity owners in 2010 to win roles in its initial public offering, the
Financial Industry Regulatory Authority said Thursday in a statement. The regulator fined the firms a total of $43.5 million, faulting them for “implicitly or explicitly” making promises that their analysts would give positive coverage. Six of the 10 firms didn't have adequate supervisory procedures to prevent the practice.
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Citigroup, Goldman Sachs,
Credit Suisse Group AG,
Barclays Plc and JPMorgan Chase & Co. were fined $5 million each.
Deutsche Bank AG,
Bank of America Corp., Morgan Stanley and
Wells Fargo & Co. will pay $4 million. Needham & Co. will pay $2.5 million. The firms didn't admit or deny wrongdoing, according to Finra.
“The firms' rush to assure the issuer and its sponsors that research was in sync with the pitch being made by their investment bankers caused them to overstep the prohibitions against analyst solicitation and the promise of favorable research,” Brad Bennett, Finra's chief of enforcement, said in the statement.
NEW PRESSURES
The case shows how new pressures came to bear on analysts after the world's biggest securities firms agreed to pay $1.4 billion in 2003 in what was then the largest-ever settlement for violating securities laws. In that sweep, state and federal regulators spotlighted incidents in which analysts helped their firms win investment-banking business by publicly touting stocks that they privately disparaged.
Such abuses helped fuel a boom in stock prices during the late 1990s and a subsequent bust that erased trillions of dollars of shareholder wealth. Securities firms promised to impose so-called Chinese walls between divisions so investment bankers couldn't push analysts to recommend that investors buy their corporate clients' shares.
Finra, the largest independent securities regulator in the U.S., said Thursday that Toys “R” Us and its owners demanded that analysts and bankers agree on valuation. For example, the owners told Barclays that they were interviewing analysts “after having been burned” on other deals in which they learned too late about analysts' negative sentiments, according to Finra.
In May 2010, Citigroup's investment bankers hosted a chaperoned call with the firm's research analyst, who then e-mailed a supervisor. “I so want the bank to get this deal!” the analyst said in the e-mail, according to Finra. Days later, bankers told the retailer that they could “count on Citi's firm-wide support and advocacy for the Toys story and valuation.”
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Other firms contacted Toys “R” Us after making their pitches, expressing enthusiasm about the firm's prospects and providing assurances that the views of bankers and analysts were aligned, Finra said. Toys “R” Us and investors, including KKR & Co., withdrew the
IPO filing last year.
“We are pleased to have resolved and put this matter behind us,” Sophia Stewart, a Citigroup spokeswoman, said in a statement. Spokesmen for the other firms either declined to comment or didn't immediately respond to messages seeking comment.
'IDEA DINNERS'
Citigroup agreed to pay a separate $15 million fine last month over Finra allegations that the bank failed to supervise research analysts and prevent them from sharing material, non-public information. The regulator cited “idea dinners” for clients, during which at least one analyst disparaged stocks that he had recently upgraded.
Most of the 10 firms named Thursday also agreed to the 2003 settlement. They include Citigroup, Credit Suisse, Morgan Stanley, Goldman Sachs, JPMorgan and Merrill Lynch, which was later acquired by Bank of America. Bear Stearns Cos., which was subsequently purchased by JPMorgan, also settled then, as did Lehman Brothers Holdings Inc.,
UBS Warburg and U.S. Bancorp Piper Jaffray.
