Wall Street Research Bias Settlement Questioned

by Glen Shapiro, LawAndTax-News.com, New York

15 May 2003

Speaking at a hearing of the Senate Banking Committee last Wednesday, chairman Richard Shelby (R-Al) expressed concerns that the global settlement recently reached with several Wall Street banks over allegations of biased research will not impact greatly on the way in which they do business, or be sufficient to reassure investors.

Under the terms of the agreement reached by the investment banks with the Securities and Exchange Commission (SEC) at the end of April, the 10 firms will pay out a combined $1.4 billion, although without admitting liability. The banks have also agreed to separate their research and investment banking arms. However, Senator Shelby suggested last week that:

'Although the $1.4 billion settlement produced record monetary sanctions, I have serious doubts that the monetary sanctions will have a big impact on Wall Street's bottom line.' He went on to add:

'Indeed, I fear that the cost of settlement will be seen as a cost of doing business. I fear that firms will perform a cost-benefit analysis and determine that a settlement payment is a small price to pay for the huge sums to be gained from exploiting conflicts of interest.'

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