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Senators 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 certain.


  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 firms.

  "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 business.

  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 beginning."

  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 them."

  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 20 years."

  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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