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A former research associate at Salomon Smith Barney Inc. laments that every time he sent an e-mail, he would immediately get the same reply: “What the hell is this?” Triggering the responses was the 873-word disclaimer automatically attached to every e-mail that originates in Salomon’s research department. The disclaimer, which takes up roughly two pages when printed, is the same text Salomon attaches to all its research reports. Salomon is by no means alone. New York State Attorney General Eliot Spitzer’s campaign against Merrill Lynch & Co., in addition to federal investigations of Enron Corp., Andersen and WorldCom Inc., have turned e-mail into a prosecutorial weapon. Prompted by the investigations, every major investment bank has adopted similarly lengthy disclosure statements. For instance, Credit Suisse First Boston attaches an eye-popping 1,500-word disclaimer to all its research in both print and e-mail; Goldman, Sachs & Co. weighs in at 987 words; Merrill offers 749 words and Deutsche Bank Securities Inc., 617. So far, Salomon is the only major investment bank that automatically attaches the statement to e-mail, regardless of content, from its research department. Most of its rivals append the disclaimer only to research. Yet, the Salomon way, lawyers say, is most likely the wave of the future. “In five years, we’re going to see 9,000-word rather than 900-word disclaimers,” said Charles Horn, a partner with Mayer Brown Rowe & Maw. “I’m exaggerating only slightly.” Horn noted that e-mail disclosures help remind analysts and bankers to be careful about e-mail habits. “They’re a response to the general perception that people tend to be more careless about what they say in e-mails,” he said. Sam Miller, chair of the market regulation practice for San Francisco-based Orrick, Herrington & Sutcliffe and a former chairman of the Federal Regulation Committee of the Securities Industry Association, agreed. “The history of regulation is that it doesn’t diminish,” Miller said. “It’s usually augmented because regulators think there’s always something else that clients should be apprised of.” For those who live by e-mail, and who have seen Salomon’s disclosure statement, that prospect may be daunting. Salomon’s statement includes a paragraph sending recipients to its research department’s Web site; a paragraph noting that securities sold by Salomon are not insured by the Federal Deposit Insurance Corporation (a necessary step for any investment bank linked to a commercial bank); a summary of Salomon’s approach to foreign securities or American Depositary Receipts; and information about Salomon’s foreign affiliates, including the address of its South African subsidiary. The kicker, after about 860 words, is a sentence saying that additional information is available on request. “Securities firms feel compelled to make a lot of these disclosures, especially in today’s environment where you’re helping analysts escape this intense scrutiny,” Miller said. “That leads to piling on more disclosures.” “There can be legal liability for e-mail traffic,” Horn added. “The trend has been to treat e-mail communication as just as liability-producing as anything in print.” Will such disclaimers help protect firms from liability? “It doesn’t hurt,” Horn said. “It could hurt if it were badly drafted, but in my experience these things are not written hurriedly in the middle of the night.” Banks are not taking chances. Press officers for major firms noted that the content of the disclosures involves several internal departments, including legal. And, as with so much else on Wall Street these days, Spitzer is often mentioned as the cause of the wordy e-mails. Spitzer’s crusade against Merrill, in which he released damning e-mails from former Merrill analyst Henry Blodget, has been an expensive lesson for investment banks. It will become even more expensive, said a spokesman for San Francisco-based Zantaz Inc., a company that archives e-mails for financial services firms. Although Zantaz would not name major clients, a spokesman noted that several of the top five brokerages use Zantaz software. Other clients include the former Robertson Stephens Inc., E*Trade Group Inc. and Datek Holdings. Zantaz’s software was developed in response to the Securities and Exchange Commission’s 1997 rule that securities firms must archive all their e-mail. The spokesman noted that the influx of longer e-mails will certainly cost investment banks more. Horn noted that e-mail disclosures do not completely protect against liability, nothing does, several lawyers noted. “I think when you just add line after line to the point where you’ve got a lot of dense type you discourage people from reading it,” Miller said. “I don’t think that’s what firms are trying to do, but I think it’s a natural reaction.” Still, Miller said, the firms face a frustrating battle against clients who pay no attention to fine print. “Securities firms have done all they can to make you aware,” he said. “I don’t know what more they can do.” Copyright �2002 TDD, LLC. All rights reserved.

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