By Maxine Shapiro, KERA 90.1 business commentator
Dallas, TX – I wonder when the statute of limitations on loss of trust is over. When a settlement is reached? For Wall Street, the answer is definitely yes. For the burned investor, I'm not sure. I'm Maxine Shapiro with KERA Marketplace Midday.
We were appalled when we heard it. I mean, jokes had been made about it for years. Researchers tout stocks that their investment bank has a vested interest in. Somewhat harmless when the market is going up, but then, continuing to sing the praises of companies that were clearly faltering, whose stock was tumbling - well, I'm still speechless. Conflict of interest, to say the least. So now the naughty investment banks have to fork up about $1.4 billion total. That was the final settlement revealed yesterday by the SEC.
I'll simplify the agreement because of time constraints. First and most important, all ties are cut between the research analyst and the investment bank. In other words, you can now hopefully trust the analysts' comments to be forthright and autonomous at Citigroup's Salomon Smith Barney unit, Credit Suisse First Boston, and Merrill Lynch, the three out of the ten brokerage firms who were singled out for issuing (quote) "fraudulent" research reports. Those three will also be paying the highest fines.
And here's where some of the money will go. Almost $490 million will be paid in penalties. Half will go to a restitution fund for customers of the firms and the other half will go to the states. Here's a little something to cheer about - the firms cannot seek tax deductions or insurance reimbursement for these costs or any others incurred in the settlement. A pool of almost $400 million will be to repay the investor for the profits made by the bogus research reports and statements. But as many are warning, don't expect to recoup your losses. This pie will be cut very thin. However, the SEC left it open for individual investors to continue to file claims against the brokerage firms for lost investment money based on analyst remarks and reports.
Will the small investor come back? Probably, eventually - but reluctantly. For KERA Marketplace Midday, I'm Maxine Shapiro.
Marketplace Midday Reports air on KERA 90.1 Monday - Friday at 1:04 p.m.
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