Ten of Wall Street’s leading investment firms last Monday agreed to pay $1.4 billion to settle accusations of issuing misleading research and other securities violations in the 1990s bull market, but the brokerages admitted no guilt in the compromise.
So, for investors burned by Internet stock valued in the triple-digits that sank to pennies in the face “strong buy” or “market outperform” ratings, there will be no deep statement of contrition from the Street.
Nor does the settlement with state and federal market regulators yield a compete accounting of who did what, and when. Moreover, a restitution fund to be funded by the firms will not be enough to cover the losses of investors eligible to make such claims, several sources said.
This is the price of a settlement, securities lawyers say, where there sits an invisible, but supremely influential, “third party” at the table pushing sides toward a deal.
“It is the vagaries of litigation in the United States, the unpredictable nature of it means both sides stand to lose,” said Isaac Lustgarten, partner in the New York office of Arnold & Porter, a Washington, D.C.-based law firm. “That is the threat, that is the third party in the negotiations — a jury or judge making an off-the-wall decision.”
Further, full-blown trials would have consumed huge amounts of time and money — resources the firms have little of in the current bear market and the public sector never has.
Indeed, at Citigroup Inc.’s C.N annual meeting in New York City two weeks ago, Chairman Sanford Weill told shareholders the bank had already spent $400 million in legal fees related to the enforcement action, spearheaded by New York Attorney General Eliot Spitzer.
Although the firms neither admit nor deny guilt under the settlement, the long ordeal for the firms played out in sometimes withering detail in the press, with damaging e-mails and other documents widely published. So, even without a clear mea culpa, the public-opinion verdict has been delivered, the lawyers say.