Research Settlement Completed: 2 More Banks Agree to Pay $100 Million

By Ben White
Washington Post Staff Writer

NEW YORK, Aug. 26 -- Wall Street passed a  significant milestone on Thursday, as two  investment banks agreed to pay a combined  $100 million to settle charges that they published  overly bullish research reports on questionable  companies to win their investment banking  business.

The agreement by the two firms, Deutsche  Bank Securities Inc. and Thomas Weisel Partners  LLC, completes the landmark "global settlement"  of research-related charges first announced  nearly two years ago by state, federal and  industry regulators and 10 of Wall Street's  largest firms.

Under the agreement announced Thursday, Deutsche  Bank will pay $87.5 million, including a $7.5  million fine for failing to promptly produce  e-mails requested by regulators. Thomas Weisel  Partners, a smaller San Francisco-based investment  bank, will pay $12.5 million.

Of the $100 million, $30 million will be  set aside to return to harmed investors, $30  million will go to state securities regulators,  and the rest will be used to pay for investor  education programs and the distribution of  independent third-party research to investors. 

Neither firm admitted or denied wrongdoing  as part of the settlement.

The payments by the two firms bring the total  value of the global research settlement to  $1.5 billion and increase to $429 million  the amount to be returned to investors.

The Wall Street research probe began in earnest  in the spring of 2002 after New York Attorney  General Eliot L. Spitzer disclosed internal  e-mails from Merrill Lynch & Co. in which  analysts at the firm privately derided stocks  they were publicly recommending, referring  to the stocks as "junk" and "crap,"  among other things.

Federal and industry regulators, initially  caught flatfooted by Spitzer's aggressive  probe, eventually joined forces with him and  other state securities officials to investigate  all of Wall Street's leading banks.

The joint investigations produced months  of damaging headlines for Wall Street at a  time when financial firms also came under  scrutiny for their role in the mutual fund  trading scandal and for assisting in accounting  irregularities at failed companies such as  Enron Corp.

The 10 firms that agreed to the research  settlement last year included Bear, Stearns  & Co.; Credit Suisse First Boston LLC;  Goldman, Sachs & Co.; Lehman Brothers  Inc.; J.P. Morgan Securities Inc.; Merrill  Lynch; Morgan Stanley & Co.; Citigroup  Inc.; UBS Warburg LLC; and Piper Jaffray Inc. 

In addition to fines and disgorgement, all  12 firms involved in the settlement agreed  to significantly alter the way they do business,  including formally separating their research  and investment banking departments.

 
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