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| 2002 News and Press Releases |
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HEADLINE ARCHIVED:
States Could Pocket Wall Street Money; Small Investors Want A Piece Of Brokerage Fines
By: Walter Hamilton, Los Angeles Times
Chicago Tribune. November 30, 2002
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EXCERPT: Securities regulators and Wall Street firms continue to haggle over how much brokerages should pay for the sins of the 1990s bull market, but questions are being raised about whether small investors who lost billions of dollars when the bubble burst will see any of that money. It's a debate that centers on people such as George Wolfberg. The 64-year-old Pacific Palisades, Calif., resident figures he lost thousands of dollars in recent years by following the advice of now-disgraced stock analysts. If the major brokerages are forced to pay fines to settle charges that their analysts' recommendations were tainted by conflicts of interest, the money should go to those who suffered, Wolfberg said. "If there's a restitution fund, the money should go to people who were harmed by the bad behavior of the Wall Street analysts," Wolfberg said. State and federal officials are negotiating with a dozen Wall Street investment banks to settle investigations of stock-analyst conduct during the 1990s bull market. The firms are expected to agree to pay $1 billion or more in fines to avoid battles with regulators. They would shell out an additional $1 billion to fund an effort to distribute independent research. What to do with the money--return it to aggrieved investors or pad the coffers of cash-strapped governments--is becoming a highly charged issue. Paying restitution to investors is critical, some experts argue, because it could be the only way for many people to recoup any of their stock market losses. The payback would cover only a sliver of each investor's losses, according to James Newman, executive director of Securities Class Action Services, which follows class-action lawsuits. Still, Newman added, "if you get a check in the mail for a few hundred dollars, it's better that investors get something." But regulators in many states, which collectively would receive about half the money paid by the firms, plan to keep it. The temptation to keep the money is sure to be strong among state governments grappling with budget deficits. And budget issues aside, setting up a restitution fund would be a logistical nightmare, some state officials say. Theoretically, everyone who owned stocks, even those who invested indirectly through 401(k) accounts, could claim to be eligible. What's more, it would be difficult to determine how much investors relied on analyst advice when buying stocks. Did people invest based solely on a research report or did they simply watch a 30-second interview on a financial news show? Even if the number of claimants was whittled down, that still would leave millions of investors who would receive minimal amounts, state officials say. State governments are only part of the equation. Federal regulators would get about half of any Wall Street settlement, and it's unclear what the fate of that money would be. A major securities reform law passed this summer allows the Securities and Exchange Commission to create restitution funds for investors. But the agency isn't required to do so, explained John Coffee, a Columbia University law professor. The restitution fund has taken on added significance because of uncertainty about how investors would fare in the class-action lawsuits that have been filed against brokerages. State regulators say the best way to help shareholders would be to release detailed findings of brokerage wrongdoing as part of a settlement. Investors could use that information, which would include incriminating e-mails and other documents, in the class-action suits, they say.
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