Citigroup Inc. (C) and Goldman Sachs Group Inc. were among 10 banks fined today 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 to win roles in its initial public offering, the Financial Industry Regulatory Authority said in a statement. The regulator fined the firms a total of $43.5 million, faulting them for "implicitly or explicitly" offering favorable research in return for a role on the IPO. Six of the 10 firms didn't have adequate supervisory procedures to prevent the practice.
Citigroup, Goldman Sachs, Credit Suisse Group AG (CSGN), Barclays Plc and JPMorgan Chase & Co. (JPM) were fined $5 million each. Deutsche Bank AG (DBK), Bank of America Corp. (BAC), Morgan Stanley (MS) 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 synch 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.
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.
Toys "R" Us and its private-equity owners, including KKR& Co., asked research analysts to make separate presentations to ensure their views on the retailer's prospects and valuation were in line with the investment bankers', according to Finra, the largest independent securities regulator in the U.S.
The IPO filing was withdrawn last year.