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The U.S. Securities and Exchange Commission and other top market regulators said Oct. 3 that they would join forces to coordinate their separate probes of Wall Street practices regarding IPOs and equities research and also propose new rules. In a statement issued early Thursday afternoon, the SEC and the New York State Attorney General’s Office said they had agreed to join with the New York Stock Exchange and the North American Securities Administrators Association “to bring to a speedy and coordinated conclusion the various investigations concerning analyst research and IPO allocations.” The SEC, New York Attorney General Eliot Spitzer and other regulators have been pursuing a slew of investigations in recent months of major Wall Street firms. Earlier this year, Spitzer won a $100 million settlement from Merrill Lynch & Co. over the practices of some of its analysts. Other firms, such as Goldman Sachs & Co., Citigroup Inc.’s Salomon Smith Barney and CSFB Corp. have also come under fire. Investigations have focused on an apparent practice by certain Wall Street firms of improperly allocating stock in hot IPOs to prized investment banking clients. They have also focused on how, under pressure from bankers, analysts have supplied unjustified favorable recommendations on the stock of fee-generating corporate clients. “Swift and appropriate resolution of these investigations will protect investors, facilitate the implementation of immediate and meaningful changes in research analyst and IPO allocation practices and help enhance investor confidence in the marketplace,” the SEC and the Spitzer’s office said in the statement. Over the next few weeks, the regulators will draft a plan to address the conflict-of-interest and other issues pertaining to analysts’ practices and IPOs. The plan will be based on evidence compiled and on input from interested parties, they said. The plan will then serve as a basis for outlining settlements with companies now under investigation. It will also be a foundation for proposed industry wide rules. The regulators said they will present the proposed resolutions to the companies being investigated and will give them a brief opportunity to enter final settlements. The regulators intend to continue their investigations of companies that decline to settle. “The SEC … looks forward to moving quickly to a comprehensive resolution of these important matters — a resolution that is designed, first and foremost, to protect investors,” SEC chairman Harvey Pitt said in the statement. Added Spitzer: “This is an important step towards bringing closure and resolution to the critical issues we have been working on. Restoring market confidence and protecting investors are, of course, our top priorities.” In a separate statement, the NYSE and NASD jointly announced their own efforts to strengthen rules governing research analysts and IPOs. The efforts, they said, were in support of the joint initiative among the regulators to address these areas. The NYSE and NASD said their new rule proposals covered the way member organizations; their research analysts and investment-banking departments manage and disclose conflicts of interest. In addition, they said, s new committee has been formed at the SEC’s behest “to extensively review the initial public offering process and recommend ways to address recent problems and strengthen the underwriting process.” The rules will increase the separation of research analysts’ compensation from investment banking influence by requiring a compensation committee approval of the compensation, the NYSE said. They will also prohibit the committee from considering an analyst’s contribution to the firm’s overall investment banking business and will bar analysts from participating in solicitation or “pitch” meetings with prospective investment-banking clients. Moreover, the rules will prohibit the manager or co-manager of a securities offering issuing research reports for 15 days before and after the expiration of any “lock-up agreement.” The IPO advisory committee will be chaired by Geoffrey Bible, retired chairman and chief executive officer of Philip Morris Companies Inc., and will present its report to NYSE and NASD. The two self-regulatory organizations will then make rule proposals or other recommendations to the SEC. Copyright �2002 TDD, LLC. All rights reserved.

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