The Global Analyst Research Settlement was an enforcement agreement reached in the United States on April 28, 2003, between the

United States Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...

(SEC),

Financial Industry Regulatory Authority The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization (SRO) that regulates member brokerage firms and exchange markets. FINRA is the successor to the National Associati ...

(NASD),

New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its listed c ...

(NYSE), and ten of the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...

's largest

investment firms Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated wit ...

to address issues of

conflict of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple interests, financial or otherwise, and serving one interest could involve working against another. Typically, this relates to situations i ...

within their businesses in relation to recommendations made by

financial analyst A financial analyst is a professional, undertaking financial analysis for external or internal clients as a core feature of the job. The role may specifically be titled securities analyst, research analyst, equity analyst, investment analyst, ...

departments of those firms.

Decision

The central issue at hand that had been

judged Judgement (or US spelling judgment) is also known as ''adjudication'', which means the evaluation of evidence to make a decision. Judgement is also the ability to make considered decisions. The term has at least five distinct uses. Aristotle s ...

in court was the conflict of interest between the

investment banking Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated wit ...

and

analysis Analysis ( : analyses) is the process of breaking a complex topic or substance into smaller parts in order to gain a better understanding of it. The technique has been applied in the study of mathematics and logic since before Aristotle (38 ...

departments of ten of the largest investment firms in the United States. The investment firms involved in the settlement had all engaged in actions and practices that had allowed the inappropriate influence of their research analysts by their investment bankers seeking lucrative fees. A typical violation addressed by the settlement was the case of CSFB and

Salomon Smith Barney Salomon Brothers, Inc., was an American multinational bulge bracket investment bank headquartered in New York. It was one of the five largest investment banking enterprises in the United States and the most profitable firm on Wall Street durin ...

, which were alleged to have engaged in inappropriate spinning of "hot"

initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...

s (IPOs) and issued fraudulent research reports in violation of various sections within the

Securities Exchange Act of 1934 The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities (stocks, bonds, and debentures) in the United States of America. A landma ...

. Similarly,

UBS Warburg UBS Group AG is a multinational Investment banking, investment bank and financial services company founded and based in Switzerland. Co-headquartered in the cities of Zürich and Basel, it maintains a presence in all major financial centres ...

and

Piper Jaffray Piper Sandler Companies is an American independent investment bank and financial services company, focused on mergers and acquisitions, financial restructuring, public offerings, public finance, institutional brokerage, investment management an ...

were alleged to have received payments for investment research without disclosing such payments in violation of the

Securities Act of 1933 The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress on May 27, 1933, during the Great Depression and after ...

Enforcement actions

As part of the settlement decision published on December 20, 2002, several regulations designed to prevent the abuse stemming from pressure by

investment bankers Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated with ...

on analysts to provide "favorable" appraisals were instantiated. Namely, these firms would have to literally insulate their banking and analysis departments from each other physically and with

Chinese walls A Chinese wall or ethical wall is an information barrier protocol within an organization designed to prevent exchange of information or communication that could lead to conflicts of interest. For example, a Chinese wall may be established to sepa ...

. Additionally, budget allocation via management in research departments will be independent of investment departments. Research analysts will also be prohibited from going on pitches and roadshows with bankers during advertising and promotion of IPOs. Similarly, the Global Settlement also increased the IPO "

quiet period In United States securities law, a quiet period is a period of time in which companies refrain from communicating with investors to avoid unfairly disclosing material, non-public information to certain investors when the company has not yet publicly ...

" from 25 days to 40 days. Finally, research analyst's historical ratings must be disclosed and made available. Other than these regulatory actions, the firms involved in the settlement have been required to pay fines to their investors, to fund investor education, and to pay for independent third-party market research. A total fine of $1.435 billion was assessed and is described in the table below. To promote transparency in the industry and prevent future securities fraud
TipRanks
was created to make stock guidance more accessible to the public.

Eliot Spitzer Eliot Laurence Spitzer (born June 10, 1959) is an American politician and attorney. A member of the Democratic Party (United States), Democratic Party, he was the 54th governor of New York from 2007 until his resignation in 2008. Spitzer was b ...

now sits on the board.

Payments

References

External links

2003 Global Settlement
{{Webarchive, url=https://web.archive.org/web/20161024085813/http://www.finra.org/industry/2003-global-settlement , date=2016-10-24 2002 scandals 2002 in the United States