On April 28, 2003, the Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD), the New York Stock Exchange (NYSE), New York State Attorney General Eliot Spitzer and other state regulators announced a final $1.4 billion settlement agreement reached with 10 Wall Street firms in their investigation into Wall Street conflicts of interest.

In the settlement, the 10 firms agreed to make significant structural changes designed to insulate their research departments from their investment banking departments. Among these changes are:

• They agreed to physically separate the research and investment banking departments within an investment bank to prevent the exchange of information between the divisions.

• They agreed that from now on, senior management would set the firm's research budget without taking investment-banking revenues into consideration.

• They agreed to not directly or indirectly link research analysts' compensation to investment banking revenues.

• They agreed that the investment banking side would have no input into analysts' ratings on a corporate banking client.

• They agreed to prohibit research analysts from soliciting investment-banking business.

Two of the most well known analysts, who came to symbolize the conflicts of interest of the 1990s bull market, were fined and banned for life from the securities industry. Henry Blodget of Merrill Lynch was ordered to pay $4 million in fines and Jack Grubman of Salomon Smith Barney was ordered to pay $15 million as part of the terms of the settlement. In addition, Sanford I. Weill, CEO of Citigroup, was banned from talking to his firm's analysts about their research outside of the presence of company lawyers.

The settlement agreement required the firms to set up contracts with at least three independent research firms to make independent research available to their customers. In addition, seven of the firms agreed to pay $80 million to fund investor education programs, and $387 million of the $1.4 billion was designated to a restitution fund for investors.

The ten firms also voluntarily agreed to ban the practice known as "spinning" -- the allocation of hot initial public offering (IPO) stocks to corporate banking clients. The settlement singled out Salomon Smith Barney and Credit Suisse First Boston as particularly having engaged in this practice.

Here is a breakdown of the individual firms payments in regards to the settlement:

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published may 8, 2003

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