Dec. 20, 2002                                                         Contact:Lucas Hamilton

Morrison applauds $1.4 billion agreement to reform investment practices


      Helena - State Auditor John Morrison today announced his support for a $1.4 billion agreement between the nation's top investment firms and the entities that regulate them, resolving conflict of interest issues at brokerage firms. Four hundred million dollars of the settlement will be divided among the states, including Montana.
      The global settlement concludes a joint investigation begun in April by regulators into the undue influence of investment banking interests on securities research at brokerage firms. The Montana Securities Department worked with federal and industry self-regulators on the conflict-of-interest investigations and the settlement.
      "This settlement is a critical step toward restoring investor confidence in the markets," Morrison said. "Montana consumers deserve to know that the investment firms they do business with act with the highest standards of honesty and integrity, putting investors' interests ahead of all others."
      The settlement severs the link between a firm's investment banking and research divisions that has been the source of conflict of interest investigations on Wall Street throughout this year. It will help ensure that stock recommendations are not tainted by a brokerage firm's efforts to obtain investment banking fees.
      The settlement:

  • Bans giving lucrative initial public offerings to corporate executives and directors who are in the position to greatly influence investment-banking decisions;
  • Requires public disclosure of analyst recommendations; and
  • Provides investors with independent research options.
      The agreement is between the Securities and Exchange Commission, New York Attorney General Elliot Spitzer, the North American Securities Administrators Association, the National Association of Securities Dealers, the New York Stock Exchange and state securities regulators on one side, and investment firms including Bear Stearns & Co., Credit Suisse First Boston, Goldman Sachs, J.P. Morgan Chase and Salomon Smith Barney on the other. Merrill Lynch already has paid $100 million to settle conflict of interest charges. Montana received $500,000 from that settlement early this month.
      "Enforcing the law in these cases is not just the right thing to do. It's vitally important to the future of investment and the businesses that depend on it," Morrison said.
       Nine hundred million dollars of the $1.4 billion settlement will be split between the Securities and Exchange Commission and states, $400 million will go toward independent research and $85 million will be dedicated to investor education.
      How the money will be allocated to states has not been determined.