Judge OKs $1.4 Billion Wall St Settlement By Greg Cresci
findlaw.com NEW YORK (Reuters)
A U.S. judge on Friday approved a $1.4 billion settlement between financial regulators and 10 Wall Street firms accused of misleading investors with biased stock research.
Judge William Pauley's approval finalizes a pact reached in April and makes official changes that affect research on thousands of U.S. stocks.
The settlement came as a result of sweeping investigations into conflicts of interest on Wall Street by a group of regulators led by New York Attorney General Eliot Spitzer, who accused the brokerages of issuing biased research to attract investment banking business.
The scandal was a black eye for well known firms in the securities industry such as Citigroup Inc. <C.N>, Merrill Lynch & Co. <MER.N> and Credit Suisse First Boston <CSGZn.VX>.
In his order on Friday, Pauley said the terms of the settlement "will effect sweeping institutional reform of equity research in the investment banking industry in the United States."
Pauley said his judgment "does not close off" other lawsuits brought by investors blaming their stock market losses on the brokerages and seeking compensation.
The judge said the 10 brokerages are required to make payments under the settlement to the Federal Reserve Bank of New York by Nov. 10. His final judgment also provides an "architecture" to distribute $399 million to investors who bought securities tainted by biased research. It also sets up a framework for a nonprofit organization for investor education.
Securities and Exchange Commission Chairman William Donaldson said in a statement, "We now begin the process of implementing the settlement, which we believe is an important part of our ongoing efforts to restore investors' faith in the fairness and integrity of our markets."
Attorneys for disgraced Wall Street analysts Jack Grubman and Henry Blodget were among about 20 lawyers who appeared before Pauley on Friday at a courthouse in lower Manhattan.
Grubman, a former telecommunications analyst at Citigroup's Salomon Smith Barney unit, is known for touting fallen stocks such as MCI, whose legal name is WorldCom Inc. <WCOEQ.PK>.
Blodget was a star Internet analyst at Merrill Lynch who was shown to have privately lambasted stocks that he recommended publicly to investors.
In December 2002, Grubman agreed to a $15 million fine and a lifetime ban from the securities industry. Blodget, for his part, has agreed to a $4 million penalty and a lifetime ban from the industry.
Other firms included in the settlement are: Morgan Stanley <MWD.N>; Goldman Sachs Group Inc. <GS.N>; J.P. Morgan Chase & Co. <JPM.N>; Lehman Brothers Holdings Inc. <LEH.N>; Bear Stearns Cos. <BSC.N>; UBS AG <UBSZn.VX> and U.S. Bancorp Piper Jaffray. <USB.N>

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