Settlement with regulators may cost Wall Street brokers $1.4bn in fines

WALL STREET’S biggest names are set to announce they have reached a deal with regulators over charges that they bamboozled investors during the boom years of the 1990s.

The settlement is expected to cost 10 brokerages $1.4bn in fines, while two of them Citigroup unit

Salomon Smith Barney (SSB) and Credit Suisse First Boston look likely to face fraud charges as well.

The other investment houses will probably face lesser charges.

The fines relate to the alleged practice of using stock research the firms claimed was independent as a way of boosting their investment banking business. Aside from the corporate penalties, at least two of the internet boom's star analysts, SSB telecom guru Jack Grubman and Merrill Lynch internet expert Henry Blodget, are likely to face multi-million dollar fines and be banned from the securities business for life.

The massive volumes of emails seized during the investigation, in which Mr Blodget and his peers were said to have privately denigrated stocks they officially tagged a "strong buy," may well be made public.

None of the banks have formally admitted to wrongdoing. The settlement, scheduled to be unveiled at a Securities and Exchange Commission (SEC) press conference late last nightok in America, follows at least a year of negotiation triggered by an array of investigations into the behaviour of investment banks during the 1990s.

Aside from the SEC, state regulators and New York Attorney General Eliot Spitzer have all accused the banks of biasing their research to please the big corporations which supplied them with lucrative investment banking business. During the 1990s, the hottest ticket was the massive mergers and acquisitions business. Regulators alleged that the banks' supposedly "independent" analysts routinely praised to the skies stocks they privately derided as worthless so as to please the potential M&A clients whose business they were chasing. The $1.4bn the banks are expected to have to pay is likely to include about $900m in fines, and about $450m to set up new, genuinely independent research. Another $85m is for "investor education." There will also be rules to try to stop a repeat of the boom-time bad behaviour banning analysts from meetings where corporate bankers are trying to sell their services to companies that are potential clients.