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| 2002 News and Press Releases |
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HEADLINE ARCHIVED:
Where Does All the Settlement Money Go? Maybe Not Where You Think
By: Tony Chapelle
On Wall Street. November 1, 2002
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EXCERPT: Who will benefit from the billions of dollars in fines and settlements that seem sure to be paid as Wall Street gets punished for the excesses of the 1990s? Most of it probably won't go to investors who lost money. In cases brought by government regulators, most of the money will wind up in state and federal general coffers, say lawyers familiar with the settlement process. But in cases brought by the NASD, most of the money will wind up in the hands of ... the NASD. Congress seems set to make sure that the SEC returns part of the cash it receives in the form of fines and censures to defrauded customers. Rep. Richard Baker (R-La.), head of the House subcommittee on capital markets, recently complained that "not one penny" of the recent $100 million fine to be paid by Merrill Lynch to New York State goes to injured investors. "When lawsuits are the only option, trial attorneys often are the only people who benefit," Baker criticized. That's why he's proposed an addition to the recently passed Sarbanes-Oxley Act that would require any global settlement to include a provision mandating all settlement amounts be handed over to injured investors. In several recent high-profile cases, victims have not won any restitution. In January, for example, after Credit Suisse First Boston was charged with bribing IPO customers to buy more stock, CSFB paid a $100 million settlement that the SEC and the NASD split equally. In that settlement, investors didn't receive any money, according to SEC spokesman John Nestor, who said the SEC's money went to the U.S. Treasury. In other cases, however, the SEC has asked courts to appoint a trustee or claims administrator who sets up a fund to distribute disgorgement money to investors who have been harmed. The SEC is currently overseeing about 60 restitution funds that arose from cases of brokerage wrongdoing. While Nestor would not reveal exactly how the money is distributed, he said the disbursement is partially influenced by the amount of money recovered, the number of victims and whether authorities can identify them. To participate in these funds, investors notify the SEC, and can receive distributions according to an approved plan. They also may be eligible to join private class actions. (Information about investor claim funds is available at the SEC website, www.sec.gov/divisions/enforce/claims.htm.) The NASD, on the other hand, is not as forthcoming about the disposition of the funds it collects. It won't give a public accounting of what happened to the $50 million it took in from CSFB this year, for example, nor for the $5 million it received when Salomon Smith Barney settled in September over Jack Grubman's recommendations on Winstar Communications. Those two payments alone dwarf the total of $14 million in fines the NASD collected in 2001. When asked how settlements are dispersed, Nancy Condon, spokeswoman for NASD Regulation Inc., said: "The NASD uses fines for investor protection and education. These initiatives include technology investments for enhanced surveillance, enforcement, and education materials and outreach programs for investors." She would not elaborate.
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