WASHINGTON - Five securities firms agreed to pay fines totaling $8.25 million for failing to retain e-mail sought by regulators investigating conflicts of interest by analysts.
Citigroup Inc.'s Salomon Smith Barney brokerage unit; Deutsche Bank AG; Goldman Sachs Group Inc.; Morgan Stanley; and U.S. Bancorp Piper Jaffray Inc. agreed to pay $1.65 million each, securities regulators said yesterday in a statement.
Each firm consented to the findings without admitting or denying the allegations.
The companies allegedly failed to keep e-mail relating to an individual firm's business for between two and three years as is required by provisions of the Securities Exchange Act.
According to the regulators' statement, the firms also were sanctioned for failing "to establish, maintain and enforce a supervisory system to assure compliance with National Association of Securities Dealers and New York Stock Exchange rules and the federal securities laws relating to retention of electronic communications."
The companies will pay their fines to the Treasury Department, the NYSE and the NASD.
"The record-keeping rules are a keystone of the surveillance of broker(s) and dealers by commission staff and by the securities industry's self-regulatory bodies," the Securities and Exchange Commission said in its ruling.
The fines are a fraction of those being sought by state and federal regulators to settle allegations that 12 firms, including these five, misled investors with their research.
New York Attorney General Eliot Spitzer and other regulators found e-mail in which analysts privately disparaged stocks of banking clients that they publicly recommended, and are seeking penalties ranging from $50 million to $500 million to settle those probes.
"It's rather ironic that preserved but unflattering e-mail brings a $100 million fine from the New York attorney general while destroying e-mail results in a $1.6 million fine from market regulators," said former SEC enforcement lawyer Jacob Frenkel, a partner at Smith, Gambrell & Russell in Washington.
Merrill Lynch & Co. Inc., the largest U.S. brokerage, agreed this year to pay $100 million to settle charges by Spitzer's office based on e-mail from Internet analyst Henry Blodget.
Spitzer released e-mail in which Blodget described Internet companies such as At Home Corp. as a "piece of crap" and InfoSpace Inc. as a "piece of junk," while Merrill Lynch analysts maintained positive ratings on the companies. The firm has said the e-mail was taken out of context.
"They're sending a mixed message if the punishment is lighter for actually losing records," said Tom Curran, a securities lawyer at Edwards & Angel who spent six years investigating white-collar crime at the Manhattan district attorney's office.
Edward A. Kwalwasser, group executive vice president of regulation for the New York Stock Exchange, challenged criticism of the fines as being too light.
"This is the biggest fine that I know of in history for failure to maintain books and records," Kwalwasser said.
Under state and federal regulators' current proposal, however, Citigroup would pay the largest fine, as much as $500 million, to settle the investigation of its research practices.
E-mail sent by Jack B. Grubman, Salomon's former telecommunications analyst, suggests that companies' investment banking business with the firm may have influenced stock ratings.