One legacy of the dotcom bust was the so-called global settlement that sought to reform sell-side stock research practices on Wall Street.
The deal called for a large fine and steps to erect something close to China walls between the research staff and the banking staff. At the time, it was hailed as a landmark settlement. That global settlement expired in 2009, and you’ve got to wonder if there’s been any slippage since then in the efforts of sell-side firms to maintain a wall between the two functions.
Citigroup recently agreed to pay $725,000 to settle claims that its brokerage unit failed to disclose conflicts of interest in research reports and analysts’ appearances, reports Bloomberg. Finra has charged that Citigroup received “investment banking revenue from some companies covered in research reports it published from January 2007 through March 2010.” In addition, Citigroup managed securities offerings for firms mentioned in the reports and had a 1 percent or greater stake in others.
To its credit, the bank self-reported many of the claims and took steps to remediate the problems, which likely won it a reduced fine. The cause was identified as compliance lapses related to various database technologies. It’s unclear whether this is a significant sell-side problem across the industry. But companies may want to redouble their efforts, as “star” Internet analysts--not to mention IPOs--are back in vogue.
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