The merry go-round of Wall Street fraud continues. After the housing crisis where Wall Street sold terrible home loans to investors we’ve arrived back to dot.com era frauds of selling favorable research. Enter the recent fine imposed by The Financial Industry Regulatory Authority (FINRA) that 10 of the largest brokerage firms were fined a total of $43.5 million for allowing their equity research analysts to solicit investment banking business by offering favorable research coverage in connection with the 2010 planned initial public offering of Toys “R” Us.
FINRA fines are as follows:
Barclays Capital Inc. – $5 million
Citigroup Global Markets Inc. – $ 5million
Credit Suisse Securities (USA), LLC – $5 million
Goldman, Sachs & Co. – $5 million
JP Morgan Securities LLC – $5 million
Deutsche Bank Securities Inc. – $4 million
Merrill Lynch, Pierce, Fenner & Smith Inc. – $4 million
Morgan Stanley & Co., LLC – $4 million
Wells Fargo Securities, LLC – $4 million
Needham & Company LLC – $2.5 million
Susan Axelrod, FINRA’s Executive Vice President, Regulatory Operations, said in a press release announcing the fine that “FINRA’s research analyst conflict of interest rules make clear that firms may not use research analysts or the promise of offering favorable research to win investment banking business. Each of these firms used their analyst to solicit investment banking business from Toys “R” Us and offered favorable research. This settlement affirms our commitment to policing the boundaries between research and investment banking to ensure that research is not improperly influenced.”
According to FINRA, in April 2010, Toys “R” Us and its private equity owners invited these 10 brokerage firms to compete for the Toys “R” Us IPO. FINRA found that each of the 10 firms used its equity research analyst as part of its solicitation for the purposes of ensuring that the analysts’ views on key issues, such as valuation, were aligned with the views expressed by the firms’ investment bankers. FINRA found that the analysts’ presentations would be a key factor in determining whether the firm received an underwriting role in the IPO.