Three of the U.S.'s largest investment firms will settle fraud case when the global settlement agreement is finally announced. Involved in giving biased stock advice based on other business that companies did or did not do with the bank, the corporate fraud scandal has cost investors large financial losses. Credit Suisse First Boston, Merrill Lynch, and the Salomon Smith Barney unit of Citigroup have been found to have evidence of fraud. If admitting to corporate fraud, the firms involved can be plagued with securities fraud class actions.
The fraud settlement will require the firms to cut off any communication between research analysts and investment bankers, not allow allocation of initial public offerings to corporate executives who are in position to influence investment banking decisions, and will require major investment firms to fund independent research. The firms have denied any wrongdoing, but back in the December 2002 preliminary settlement the firms involved in the corporate fraud agreed to fines and other payments, in addition to changing the way business is done. Under terms of the settlement, the firms that have been involved in the securities fraud will pay $900 million to federal and state regulators, $85 million for investor education, and $450 million to provide customers with independent research.
Citigroup's Smith Barney unit will have to pay the largest single amount at $400 million. Merrill Lynch agreed to pay $100 million toward investor education and independent research and a $100 million penalty that the company had agreed to earlier. Included in the final settlement, regulators have said that the three firms will be charged with committing fraud against investors. According to regulators, fraud charges will be dropped in the final settlement in exchange for the firms agreeing to reforms.
What the final wording of the settlement will include will remain unknown until it has become final, as well as the amount of evidence from the fraud investigations that will be released. This information will affect how the firms involved in corporate fraud will be pursued in securities fraud class actions. Other firms included in the investment bank fraud settlement case are Deutsche Bank, Bear Stearns, Goldman Sachs, J.P. Morgan Chase, Lehman Brothers, and UBS Warbug. Thomas Weisel Partners opted out of the settlement and talks of a possible lawsuit against them have been disclosed by a source that was close to the negotiations.
For more information on investment bank fraud contact us to confer with a fraud lawyer.