SEC Fines Seven Regional Securities Brokers

August 27, 2004

Seven regional brokerage firms have been fined a total $3.65 million by federal regulators for allegedly failing to disclose that they received payments for issuing research on certain companies.

Investment firms are required by law to disclose such payments, the Securities and Exchange Commission said in announcing the civil fines against Philadelphia-based Janney Montgomery Scott and six others — Adams Harkness Inc.; SG Cowen & Co.; Friedman, Billings, Ramsey & Co.; Morgan Keegan & Co.; Needham & Co. and Prudential Equity Group.

From 1999 through 2002, the seven brokerages received payments from other investment firms in exchange for issuing research on companies for which the investment firms were underwriting sales of securities, in some cases going public, according to the SEC.

“If a firm receives a payment, any portion of which is for research, that firm must disclose the receipt and amount of the payment when it publishes the research,” said Antonia Chion, an associate director of the SEC’s enforcement division. “Failure to do so violates the securities laws and deprives investors of information relating to the objectivity of the research.”

The fines range from $125,000 to $875,000. The amounts are relatively small, but the settlement touches on an important area that can affect investors’ confidence. In April 2003, 10 of Wall Street’s biggest investment firms agreed to pay a total of $1.4 billion to settle allegations by the SEC and state securities regulators that they issued biased stock ratings to lure investment-banking business.

The Wall Street firms, including Citigroup, Merrill Lynch and J.P. Morgan Chase, also were forced to cut the links between analysts’ stock research and the firms’ investment-banking business.

In the new accord, the regional brokerages neither admitted to nor denied the SEC’s allegations but did agree to refrain from future violations of securities laws.

Four of the firms — Adams Harkness, Janney Montgomery Scott, Morgan Keegan and Needham — are paying higher fines because they also violated rules requiring internal company e-mails to be preserved, the SEC said.

The fines for the seven firms are: Adams Harkness, based in Boston, $575,000; SG Cowen, New York, $125,000; Friedman, Billings, Ramsey, Arlington, Va., $125,000; Janney Montgomery Scott, Philadelphia, $875,000; Morgan Keegan, Memphis, $875,000; Needham, New York, $700,000; and Prudential Equity, Newark, N.J., $375,000.

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