Wall Street Investment Firms Fined Historic $1.4 Billion in Settlement

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In a settlement announced on Monday, April 28 2003, ten Wall Street Firms - Salomon Smith Barney, Merrill Lynch, Credit Suisse First Boston, Morgan Stanley, Goldman Sachs, J.P. Morgan Chase, Bear Stearns, Lehman Brothers, US Bancorp Piper Jaffray, UBS Warburg (UBS Paine Webber) - will pay out at least $1.4 billion and will be required to accept business reforms. No firm or individual has admitted to having misrepresented information presented to investors. Internal emails were used as evidence that analysts had known the stocks were not represented accurately. In fact, while the stocks were being touted in public, they were being disparaged in private emails.

The settlement with its fines, payments, and reforms are geared towards increasing investor confidence. $387.5 million of this fund has been set aside to reimburse investors who were victims of stock broker fraud. Investors have the options of applying for a piece of this settlement as well as opting to bring arbitration claims against the brokerage firms. The settlement does not prohibit an investor from pursuing both options. Read more.

Terms of the $1.4 billion Wall Street settlement:

General Settlement Terms:-
Read the terms that apply to all ten brokerage firms.
Individual Brokerage & Analysts Settlement Terms

Quotes about the Stock Fraud Settlement:

William Donaldson, Chairman of the SEC: “These cases reflect a sad chapter in the history of American business – a chapter in which those who reaped enormous benefits from the trust of investors profoundly betrayed that trust.”

Eliot Spitzer, New York State Attorney General, speaking about Salomon executives awareness of manipulating research to benefit investment banking business:  The executives “fully grasped and understood the way research was being manipulated.” Reimbursement fund for “small investors lead astray…because of fraudulent research”.

John Markese, President of the American Association of Individual Investors: The settlement “brings home just how rotten this thing was.”

Dick Grasso, New York Stock Exchange chairman: “This historic settlement establishes a clear bright line – a banker is a banker and an analyst is an analyst.  The two shall never cross.”

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The Associated Press.  “Regulators Finalize $1.4 Billion Wall St. Settlement.” Nytimes.com. 28 April 2003., http://www.nytimes.com/2003/04/28/business/28WIRES-WALL.html.  Shell, Adam.

“Wall St. firms hit over ‘90s misdeeds”. USA Today. Page 1. Fogarty, Thomas A. and Iwata, Edward. “Links between reports, banking fees cited”. USA Today. 29 April 2003. Money: Page 3B.

Block, Sandra. “Don’t look to settlement for payback of your investment”. USA Today. 29 April 2003. Money: Page 3B.

Smith, Randall, Craig, Susanne, and Solomon, Deborah. “Government’s Posse of Fighting Regulators Calls Changes Historic”. The Wall Street Journal. 29 April 2003. Money & Investing: Pages C1 & C3.

Davis, Ann. "Merrill Faces Queries on Its Reserves".  The Wall Street Journal.  29 April 2003.  Money & Investing:  Page C9.