Wall Street Agrees To Pay The Piper

The nation's largest brokerages agreed Friday to pay almost $1 billion to settle conflict-of-interest allegations, one of the largest fines ever levied by securities regulators.

The settlement also called for the 10 firms, including Citigroup, Goldman Sachs and Credit Suisse First Boston, to sever the links between research and investment banking and to fund independent stock research for investors that would complement their own analysts' work.

The firms will pay fines ranging from $325 million, by Salomon Smith Barney, to $50 million each by Goldman Sachs, JP Morgan, Lehman Brothers, Deutsche Bank and UBS. The firms also will pay $450 million over five years to pay for independent research for investors and $85 million for a nationwide investor education program.

The other firms agreeing to the settlement Merrill Lynch & Co., Morgan Stanley, J.P. Morgan Chase, Bear Searns, Lehman Brothers, Deutsche Bank and UBS Pain Webber, according to a joint statement by regulators.

The $975 million settlement excludes two smaller firms that had raised objections to the settlement this week.

"In the end, this case was about one thing: ensuring that small investors get a fair shake," said New York Attorney General Eliot Spitzer. "The people on Main Street must have confidence in the people on Wall Street. This agreement will help rebuild that confidence."

As CBS News Correspondent Anthony Mason reports, while the companies face unprecedented fines, under the terms of the settlement the investment firms do not have to admit any wrongdoing.

"This is exactly what happens when you don't regulate yourself the right way. You get regulated externally, and that's never good," says analyst Gary Vineberg.

New York Stock Exchange Chairman Dick Grasso Belives it's time for the markets to move on.

"This is a very severe penalty. It's not just the monetary measurement. It's the brand issue." "I think it's a very powerful message," Grasso tells Mason.

Regulators began investigating brokerages following the decline of Enron Corp. and revelations that small investors lost millions of dollars after they were advised to buy stocks that analysts privately derided in order to bolster the stocks' value and lure the companies as investment banking clients.

Under the settlement, analysts will be barred from being paid for equity research by investment banking arms and won't be allowed to accompany investment bankers "on pitches and road shows" to lure investment banking clients.

The agreement will also

• Ban the "spinning" of Initial Public Offerings (IPOs). Brokerages won't be allowed to allocate lucrative IPO shares to corporate offices that could "greatly influence" investment banking decisions.
• Require firms to provide independent research to investors by contracting with no fewer than three independent research firms. A monitor will be appointed with final authority to procure independent research from independent analysts.
• Require disclosure of rating and price target forecasts within 90 days to allow for evaluation and comparison of performance by analysts.

Whatever that restitution fund, it won't be enough, said CBS MarketWatch editor Tom Bemis.

"Relative to the kind of losses that investors have seen over last two or three years, it's trivial, but it is a large headline number, at least," Bemis said, "and there is at least the potential for some compensation in the most egregious cases."

A dozen major brokerages had met over the last two weeks with representatives of Spitzer and Steven Cutler, the enforcement director of the Securities and Exchange Commission.

The brokerages gave their initial support to a deal in October, but squabbles over the fines and which firms would pay how much has held up the settlement.

In May, Merrill Lynch, the nation's largest brokerage firm, agreed to a settlement with Spitzer's office that included a $100 million fine and the separation of its analysts from investment banking.

Spitzer had released documents and e-mails showing that Merrill Lynch analysts privately used words like "disaster" and "dog" to describe some stocks while publicly recommending that investors buy the companies' shares.

The National Association of Securities Dealers, which polices the brokerage industry, and the New York Stock Exchange announced in October that they were tightening their rules governing analysts and stock offerings.