Securities and Exchange Commission
Litigation Release No. 18110 / April 28, 2003
Securities and Exchange Commission v. Credit Suisse First Boston LLC, f/k/a Credit Suisse First Boston Corporation, 03 CV 2946 (WHP) (S.D.N.Y.)
SEC SUES CREDIT SUISSE FIRST BOSTON FOR RESEARCH ANALYST CONFLICTS OF INTEREST FIRM TO SETTLE WITH SEC, NASD, NYSE, NY ATTORNEY GENERAL, AND STATE REGULATORS
The Securities and Exchange Commission announced today that it has settled charges against Credit Suisse First Boston LLC ("CSFB"), formerly known as Credit Suisse First Boston Corporation, a New York-based brokerage firm and investment bank, arising from an investigation of research analyst conflicts of interest. This settlement, and settlements with nine other brokerage firms, are part of the global settlement the firms have reached with the Commission, NASD, Inc., the New York Stock Exchange, Inc. ("NYSE"), the New York Attorney General, and other state regulators. As part of the settlement, CSFB has agreed to pay $75 million as disgorgement and an additional $75 million in penalties. One-half of the total of these payments - $75 million - will be paid in connection with the SEC action and related proceedings by the NASD and NYSE and will be placed into a distribution fund for the benefit of customers of the firm. The remainder will be paid to resolve related proceedings by state regulators. In the SEC action, CSFB has agreed to a federal court order that will enjoin the firm from future violations of the federal securities laws and NASD and NYSE rules and require the firm to make changes in the operations of its equity research and investment banking departments. In addition, CSFB will pay, over five years, $50 million to provide the firm's clients with independent research.
In connection with this matter, the Commission today filed a Complaint against CSFB in the U.S. District Court for the Southern District of New York, alleging violations of the federal securities laws and NASD and NYSE rules. According to the Commission's Complaint, from at least July 1998 through December 2001, research analysts at CSFB were subject to inappropriate influence by investment banking at the firm. The Complaint also alleges that CSFB published false or misleading research, published exaggerated or unwarranted research or research that lacked a reasonable basis, engaged in improper "spinning" activities relating to initial public offerings ("IPOs"), and failed to maintain appropriate supervision over its research and investment banking operations.
Specifically, the Commission's Complaint alleges that:
CSFB has agreed to settle the Commission's action and has consented, without admitting or denying the allegations of the Complaint, to the entry of a final judgment that, if approved by the court, permanently enjoins CSFB from violations of antifraud provision Section 15(c) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 15c1-2 thereunder, Section 17(a) of the Exchange Act and Rule 17a-3 thereunder, and NASD and NYSE rules pertaining to just and equitable principles of trade (NASD Rule 2110; NYSE Rules 401 and 476), advertising (NASD Rule 2210; NYSE Rule 472), broker-dealer record keeping (NASD Rule 3110; NYSE Rule 440), and supervisory procedures (NASD Rule 3010; NYSE Rule 342). The final judgment also orders the firm to make the payments described above, and provides for the appointment of a fund administrator who, subject to court approval, will formulate and administer a plan of distribution for those monies placed into the distribution fund.
In addition, the final judgment orders CSFB to implement structural reforms and provide enhanced disclosure to investors, including a broad range of changes relating to the operations of its equity research and investment banking operations. CSFB has agreed to sever the links between research and investment banking, such that: research and investment banking are physically separated with completely separate reporting lines; analysts' compensation cannot be based directly or indirectly upon investment banking revenues; investment bankers may no longer evaluate analysts; investment bankers will have no role in determining what companies are covered by the analysts; and research analysts will be prohibited from participating in efforts to solicit investment banking business, including pitches and roadshows. In addition, CSFB must disclose on the first page of each research report whether the firm does or seeks to do investment banking business with that issuer, and when CSFB decides to terminate coverage of an issuer, CSFB must issue a final research report discussing the reasons for the termination. Each quarter, CSFB also will publish on its website a chart showing its analysts' performance, including each analyst's name, ratings, price targets, and earnings per share forecasts for each covered company, as well as an explanation of the firm's rating system.
CSFB also has agreed as part of this settlement to retain, at its own expense, an Independent Monitor to conduct a review to provide reasonable assurance that the firm is complying with the structural reforms. This review will be conducted eighteen months after the date of the entry of the Final Judgment and the Independent Monitor will submit a written report of his or her findings to the SEC, NASD, and NYSE within six months after the review begins. Five years after the entry of the final judgment, CSFB must certify to the SEC and other regulators that it has complied in all material respects with the requirements and prohibitions of the structural reforms.
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The Commission acknowledges the assistance of NASD, NYSE, the Massachusetts Securities Division, and other state regulators in the investigation of this matter.