An Aug. 25 Business article incorrectly reported the time frame covered in a settlement between the Securities and Exchange Commission and seven investment banking firms over charges of failing to disclose payments. The conduct occurred from 1999 to 2002, not 2003. The article also incorrectly said that failure to disclose such payments violates SEC rules; it is a violation of securities laws. (Published 8/26/04)
Seven investment banking firms, including Arlington's Friedman, Billings, Ramsey Group Inc., are set to pay a total of $3.65 million to settle Securities and Exchange Commission charges that they failed to disclose payments from companies about whom they issued research reports, according to sources familiar with the deal.
The settlement, which covers conduct from 1999 to 2003, could be announced as early as today, the sources said. The sources spoke on the condition of anonymity because the terms of the deal had not yet been publicly released.
Companies taking part in the anticipated settlement are regional in scope. They include New York's SG Cowen & Co. and Needham & Co.; Newark's Prudential Equity Group LLC; Philadelphia's Janney Montgomery Scott LLC; Boston's Adams Harkness Inc.; and Memphis-based Morgan Keegan & Co. No individuals at the firms are expected to be cited by federal regulators.
SEC spokesman John Nester declined to comment, as did representatives for Adams Harkness, Needham, Prudential, SG Cowen, FBR and Morgan Keegan. Spokesmen for Janney Montgomery Scott could not be reached for comment yesterday evening.
It is a violation of SEC rules for brokerages to accept payment from companies without disclosing it when issuing research on those companies. The SEC also is likely to accuse at least some of the seven firms involved in the settlement of failing to keep proper records, e-mail messages and research reports.
Many of the incidents that regulators are likely to cite took place during the Internet boom, the sources said.
The issue of tainted research has had broad reverberations on the market. Ten of the nation's biggest brokerage firms agreed to pay $1.4 billion last year to settle charges that their investment banking divisions exerted improper influence on securities research reports -- with analysts praising companies publicly that they derided privately.
Some of the allegations in those cases related to improper disclosure of research payments. But many of the practices covered in the global settlement went further, including analysts privately advising corporate managers on strategy while also offering what purported to be objective reports on the firms.
As part of that settlement, the brokerages agreed to bar research analysts from being paid for investment banking work and to prevent them from taking part in sales meetings and road shows.