Securities News

Vermont to Receive $3.875 Million in Global Securities Settlement

Montpelier, Vermont – Nine major Wall Street brokerage firms have agreed to pay the State of Vermont $3.875 million in fines as part of an historic nationwide settlement of allegations that they provided misleading stock recommendations to investors in Vermont and other states, Commissioner John Crowley of the Vermont Department of Banking, Insurance, Securities and Health Care Administration announced today.  The settlement brings to an end a year-long investigation by state and federal securities regulators into charges that the nine firms misled investors around the country by issuing overly optimistic research reports on companies whose stock offerings they were being paid to distribute.

 As part of the settlement, the firms have also agreed to place $437.5 million into a special restitution fund to help reimburse defrauded investors, Crowley said.  The fund, known as the Fair Fund, will be administered by the Securities and Exchange Commission, a branch of the federal government.  Crowley also noted that under the terms of the settlement individual investors will remain free to pursue civil litigation or arbitration claims against the settling firms. To help investors recover their losses, the states involved in today’s settlement have agreed to make the evidence uncovered in their investigations available to the general public.

In addition, the nine firms involved in the settlement have agreed to make sweeping changes in the way they conduct research and issue stock recommendations.  These changes are designed to force Wall Street to provide investors with independent research in the future and to eliminate the influence that the firms’ investment banking sections have on their research departments.

“We’re hopeful that today’s settlement will continue the process of restoring confidence in our national securities markets,” Commissioner Crowley said.  “Our capital markets are the strongest in the world, but investor confidence has been severely undermined by the scandals of the last several years.  By ensuring that investors receive honest research and stock recommendations, this agreement will help change that.”

Investigators and attorneys from the Vermont Securities Division participated actively in the joint state-federal investigation and the subsequent settlement negotiations. Crowley said he believes this fact reinforces the important role the states play in regulating the securities markets and protecting small investors. 

The nine brokerage firms involved in the settlement agreement are Bear Stearns, Credit Suisse First Boston, Goldman Sachs, J.P. Morgan, Lehman Brothers, Morgan Stanley, Piper Jaffrey, Citigroup Global Markets (formerly known as Salomon Smith Barney), and UBS Warburg.  A tenth firm, Merrill Lynch, entered into a similar settlement with state regulators last year.

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	Did You Know?
	Transfer Trades: Entries made upon the books of Futures Commission Merchants Transfer Trades: Entries made upon the books of Futures Commission Merchants for the purpose of: (1) transferring existing trades from one account to another within the same firm where no change in ownership is involved; (2) transferring existing trades from the books of one FCM to the books of another FCM where no change in ownership is involved. Also called Ex-Pit Transactions.