Question Effectiveness of $1.4 Billion Settlement
Stephen Crowley/The New York Times
William H. Donaldson, the chairman of the Securities and Exchange
Commission, left, and Eliot Spitzer, the New York attorney general,
both said further inquiries into executives at brokerage firms are
ASHINGTON, May 7 (Reuters) Senior United States senators questioned
today whether the $1.4 billion Wall Street settlement would change
attitudes at the top of the biggest brokerage firms, while regulators
defended the agreement as a historic move toward reform.
"Firms are not contrite and simply consider the fines and
penalties as a means to make a problem go away," said Richard
C. Shelby, Republican of Alabama, at a Senate Banking Committee
hearing on the settlement that was made final last week with 10
"I am not convinced that the global settlement has done
enough to change attitudes at the top of these banks," said
Mr. Shelby, chairman of the committee.
The Securities and Exchange Commission on April 28 released
final terms of a settlement resulting from almost two years of investigations
into analysts issuing overly positive research, mostly in the 1990's
market bubble, to please corporate managers and win investment-banking
Mr. Shelby compared huge investor losses with the relatively
modest payout and asked William H. Donaldson, chairman of the S.E.C.,
whether the settlement punished Wall Street enough.
Mr. Donaldson, a multimillionaire former investment banker and
former chairman of the New York Stock Exchange, pledged further
inquiries of brokerage executives. He said, "You cannot dismiss
the fact that these are the largest fines that have ever been given.
"This is not the end," he said. "This is just
The settlement banned two analysts from the securities business
for life: Henry Blodget, the former Internet analyst at Merrill
Lynch, and Jack B. Grubman, once the top telecommunications analyst
at Citigroup's Salomon Smith Barney.
But no other individuals have been singled out despite thousands
of memos and e-mail messages released by investigators showing managers
deeply involved in an intertwining of research and investment banking
that compromised analysts' work.
Senator Paul S. Sarbanes of Maryland, the top Democrat on the
banking panel, said Wall Street must "get with the program."
Mr. Sarbanes, who helped write the 2002 Sarbanes-Oxley corporate
and accounting reforms that came after the collapse of Enron, added,
"If the people on Wall Street can't be sensitized to what's
happened, then obviously the regulators are going to have to sensitize
The New York attorney general, Eliot Spitzer, who spearheaded
the first inquiries into analyst misconduct, told the committee
that his investigation of individuals would intensify. He called
brokerage executives "fair game" for regulators.
Turning the tables on Congress as the hearing moved to the historic
causes of the scandal, Mr. Spitzer attacked "an overarching
effort to deregulate the financial services industry over the last
He said, "I think we may now be paying the price for that
deregulation," which came amid reassurances from investment
and commercial banks that they could police themselves.
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