Seven Broker-Dealer Firms Settle Enforcement Actions Involving Non-Disclosure of Payments for Research
FOR IMMEDIATE RELEASE
Firms Agree to Pay a Total of $3.65 Million
Four Firms Also Fined for Failure To Preserve E-Mail Communications
Washington, D.C., Aug. 25, 2004 -- The Securities and Exchange Commission announced today settled enforcement actions against seven broker-dealers for failing to disclose they had received payments for providing research coverage of certain public companies, in violation of Section 17(b) of the Securities Act of 1933. The seven firms are
- Needham & Company, Inc. (Needham)
- Janney Montgomery Scott LLC (Janney)
- Morgan Keegan & Co., Inc. (Morgan Keegan)
- Prudential Equity Group, LLC f/k/a Prudential Securities Inc. (Prudential Equity)
- Adams Harkness, Inc. f/k/a Adams Harkness & Hill, Inc. (Adams Harkness)
- Friedman, Billings, Ramsey & Co., Inc. (Friedman Billings)
- SG Cowen & Co., LLC f/k/a SG Cowen Securities Corporation (SG Cowen).
The Commission found that during the period 1999 through 2002, these firms received payments for research from other broker-dealers that were underwriting securities offerings for certain public, or soon-to-be public, companies. The underwriting broker-dealers paid the firms to issue research or "cover" their issuer clients. None of the firms disclosed in their published research reports the receipt and amount of the payments, as required by Section 17(b) of the Securities Act.
Antonia Chion, Associate Director of the Division of Enforcement, said, "If a firm receives a payment, any portion of which is for research, that firm must disclose the receipt and amount of the payment when it publishes the research. Failure to do so violates the securities laws and deprives investors of information relating to the objectivity of the research."
In connection with today's settlement, the SEC found that:
- During 1999 through 2001, Needham received four payments ranging from $75,000 to $100,000 for issuing research.
- During 1999 and 2000, Janney received three payments ranging from $23,800 to $50,000 for issuing research.
- During 1999 through 2002, Morgan Keegan received three payments ranging from $49,000 to $200,000 for issuing research.
- During 1999 and 2000, Adams Harkness received three payments ranging from $25,000 to $200,000 for issuing research.
- During 1999 through 2000, Prudential Equity received three payments ranging from $50,000 to $200,000 for issuing research.
- In 2001, Friedman Billings and SG Cowen each received one payment of $100,000 for issuing research.
Without admitting or denying the findings, the seven firms have consented to orders that they cease and desist from committing any violations and any future violations of Section 17(b) of the Securities Act.
In addition, the SEC fined four of the firms for violating the record-keeping requirements concerning business-related internal e-mail communications during the period July 1999 through June 2001. Each of the four firms -- Adams Harkness, Janney, Morgan Keegan, and Needham -- consented, without admitting or denying the findings, to a cease-and-desist order. The firms also have consented to undertakings to ensure that they are in compliance with the record-keeping requirements of Section 17(a) and Rule 17a-4 of the Exchange Act.
Pursuant to the enforcement actions, the seven firms will pay penalties totaling $3,650,000. Following is a chart detailing the penalties paid by each firm:
*Includes a penalty for failing to retain all business-related internal email in violation of 17(a) of the Exchange Act.
Antonia Chion, Associate Director
Yuri B. Zelinsky, Assistant DirectorSee Also: Janney Montgomery Scott LLC; Needham & Company, Inc.; SG Cowen & Co., LLC, f/k/a SG Cowen Securities Corporation; Prudential Equity Group, LLC f/k/a Prudential Securities Inc.; Morgan Keegan & Co., Inc.; Friedman, Billings, Ramsey & Co., Inc.; Adams Harkness, Inc., f/k/a Adams, Harkness & Hill, Inc.