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U.S. Securities and Exchange Commission

U.S. Securities and Exchange Commission

Litigation Release No. 18855 / August 26, 2004

Securities and Exchange Commission v. Thomas Weisel Partners LLC, 04 CV 06910 (WHP) (S.D.N.Y.)



The Securities and Exchange Commission announced today that it has settled charges against Thomas Weisel Partners LLC, a San Francisco, California-based brokerage firm and investment bank, arising from an investigation of research analyst conflicts of interest. This settlement is related to the global settlement that ten other firms reached with the Commission, NASD, Inc., the New York Stock Exchange, Inc. ("NYSE"), and state regulators in April 2003. In connection with this matter, the Commission today filed a Complaint against Thomas Weisel Partners 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. In the SEC action, Thomas Weisel Partners 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. As part of the settlement, Thomas Weisel Partners has agreed to pay $5 million as disgorgement and an additional $5 million in penalties. One-half of the $10 million total of these payments - $5 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 addition, Thomas Weisel Partners will pay, over five years, $2.5 million to provide the firm's clients with independent research.

According to the Commission's Complaint, from July 1999 through 2001, research analysts at Thomas Weisel Partners were subject to inappropriate influence by investment banking at the firm. The Complaint also alleges that, on several occasions, Thomas Weisel Partners's analysts published research that contained exaggerated or unwarranted claims, and/or opinions for which there was no reasonable basis, and that Thomas Weisel Partners received payment from another investment bank for providing research coverage of that firm's investment banking client without disclosing that payment in research reports, as federal law requires. Further, the Complaint alleges that Thomas Weisel Partners made payments to other firms for those firms to publish research on Thomas Weisel Partners's underwriting clients without ensuring that such payments were disclosed. Finally, the Complaint alleges that Thomas Weisel Partners failed to supervise its research analysts adequately and to establish policies to ensure their proper conduct.

Specifically, the Commission's Complaint alleges that:

  • Thomas Weisel Partners engaged in acts and practices that created and maintained inappropriate influence by investment banking over research analysts. Thomas Weisel Partners analysts worked as a team with the firm's investment bankers and were deeply involved in the firm's efforts to pitch and win investment banking business. Firm analysts also participated in pitches for investment banking business and prepared portions of pitchbooks used in such solicitations. Some pitchbooks contained information that implied to issuers that Thomas Weisel Partners would provide positive research coverage if selected for an investment banking transaction, and that such coverage could result in rising stock prices for those companies. The firm's investment bankers also evaluated the firm's research analysts and those performance evaluations were considered in setting the analysts' compensation.

  • In certain instances, Thomas Weisel Partners issued research reports that contained exaggerated or unwarranted claims and/or opinions for which there was no reasonable basis. For example, the Thomas Weisel Partners analyst covering InfoSpace, Inc. maintained a buy rating on the stock in January through July 2001, while, during the same time period, privately telling colleagues in e-mails, among other things, that InfoSpace is "dead $" and "I can't . . . believe that I still have [InfoSpace] as a buy rating. I need a drink."

  • In another instance, while Thomas Weisel Partners had a "buy" rating as to Level3 Communications, Inc. in May and June 2001, the analyst covering Level3 admitted in an e-mail that the stock was not "a buy," and explained that he was waiting to downgrade the stock until after a Thomas Weisel Partners-sponsored business conference because, "If I downgrade right now they will assuredly pull from our conference and we can't afford that." In a subsequent email, the analyst stated that, despite the "buy" rating, "I've basically been telling our clients that it is a great short."

  • Thomas Weisel Partners failed to disclose that it was paid $40,000 by another investment bank in part for providing research coverage of Hotjobs.com, Inc. Thomas Weisel Partners also paid a total of $375,000 to other brokerage firms to initiate or continue research coverage on issuers for whose securities offerings Thomas Weisel Partners served as lead underwriter or co-manager, including Arena Pharmaceuticals and Proxicom, Inc. Thomas Weisel Partners did not ensure that these payments were disclosed.

  • Thomas Weisel Partners's management failed to adequately monitor the activities of the firm's research and investment banking professionals to ensure compliance with NASD and NYSE rules and the federal securities laws.

Thomas Weisel Partners 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 Thomas Weisel Partners from violations of Section 17(b) of the Securities Act of 1933 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), 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 a distribution fund.

In addition, the final judgment orders Thomas Weisel Partners 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. Thomas Weisel Partners 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, Thomas Weisel Partners 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 Thomas Weisel Partners decides to terminate coverage of an issuer, Thomas Weisel Partners must issue a final research report discussing the reasons for the termination. Each quarter, Thomas Weisel Partners 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.

Thomas Weisel Partners 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 begin on April 30, 2005, and the Independent Monitor will submit a written report of his or her findings to the SEC, NASD, and NYSE within 30 days from the completion of the review, but no later than October 31, 2005. On October 31, 2008, Thomas Weisel Partners 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, and the California Department of Corporations in the investigation of this matter.

SEC Complaint in this matter



Modified: 0X/XX/2004