Some Stock Pickers Still Face Inquiries

Even as the fates of two of the most prominent promoters of telecom and Internet stocks became official Monday, regulators vowed that they haven’t ended their probes of individual Wall Street analysts.

Henry Blodget, the former Merrill Lynch & Co. analyst whose public enthusiasm for such firms as Pasadena’s GoTo.com was belied by his private e-mails, agreed -- in an accord announced as part of Monday’s settlement between Wall Street and securities regulators -- to pay a $2-million fine and return $2 million he allegedly earned improperly. He will be barred for life from associating with any member of the NASD, formerly the National Assn. of Securities Dealers.

Jack Grubman, the onetime star telecom analyst and deal maker for Citigroup Inc., will pay a $7.5-million fine, return $7.5 million and also be banned for life from the industry.

Securities and Exchange Commission and NASD officials said they were investigating additional members of the stock analyst community but wouldn’t identify them.

“Changing the culture on Wall Street requires that individuals know they personally will be held responsible for their conduct,� Mary Shapiro, head of the NASD’s enforcement division, said in a telephone interview. “They must know they can’t hide behind the firms.�

But the meting out of banishments and monetary fines for key figures on Wall Street has drawn criticism from the industry’s critics, who contend that jail sentences are warranted to punish collusion between analysts who publicly touted stocks during the Internet bubble and the investment bankers at their firms who collected huge fees for underwriting stock offerings.

Critics also contend that the probes should focus more attention on the sins of individuals rather than just the wrongdoing of big brokerage firms.

“They took out of our financial system trillions of dollars in net worth when stocks crashed,� said Bay Area plaintiffs’ attorney Joseph Cotchett. “Thousands if not millions of people have lost their jobs due to the greed of Wall Street. How come the settlement only includes one or two people paying these paltry fines?�

SEC and NASD officials say they have no power to send anyone to jail, but note that they work closely with criminal prosecutors who can.

And they point out that they aren’t investigating only analysts, but, as important, the executives who supervise them.

“We’re looking up the chain to see whether there was a lack of supervision,� said Barry R. Goldsmith, the NASD’s executive vice president for enforcement:

Shapiro and Goldsmith cited as one example former Credit Suisse First Boston investment banker Frank Quattrone. Quattrone resigned from his Silicon Valley-based job last month after the discovery of an e-mail message, sent while the firm was under investigation, that may have encouraged employees to throw out documents related to initial public offerings.

The NASD has accused Quattrone of abuses relating to his oversight of analysts and handling of IPOs, and federal prosecutors in Manhattan last week charged him with three criminal counts of obstructing justice.

Other Wall Street figures reportedly under investigation include former Blodget supervisor Andrew J. Melnick, who had been the director of Merrill Lynch Global Securities Research, and Kevin McCaffrey, who as former head of stock research at Citigroup oversaw Grubman. Both have been replaced in their research jobs; they couldn’t be reached for comment Monday.

In a statement Monday, Grubman attorney Lee Richards said Grubman and his family “are very pleased that they can finally put these matters behind them and move forward.�

Blodget said that under the terms of the settlement, he was unable to discuss the charges.

The 23-page settlement with Blodget describes at length the discussions among investment bankers and Blodget and other analysts about what rating to assign GoTo.com, now known as Overture Services Inc.

Paul Saffo, head of the Institute for the Future in Menlo Park, Calif., a tech industry policy group, said it’s difficult to assign blame when so many people were swept up in what became mass hysteria over the prospects for technology companies. “Sure, these analysts deserve what they get,� he said, “but ordinary investors need to look at themselves in the mirror and ask themselves if they aren’t to blame as well.�

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Key players

The scandal involving tainted Wall Street stock research has tarnished some of the brokerage industry’s brightest stars.

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Jack Grubman: Former Citigroup telecom analyst. He resigned in August after allegedly tailoring his research to please the firm’s investment bankers. On Monday, he agreed to pay $15 million and be barred from the securities industry.

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Henry Blodget: Former Merrill Lynch technology analyst. He allegedly pushed stocks he knew to be losers. He agreed Monday to $4 million in penalties and a lifetime ban from the securities industry.

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Frank Quattrone: Former Credit Suisse First Boston investment banker. Last week, federal prosecutors charged him with obstruction of justice in their probe of first-time stock offerings floated by CSFB. Securities regulators charged him in March with abuses related to handling of stock offerings and pressuring analysts.

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Sanford I. Weill: CEO of Citigroup. He was criticized for allegedly influencing analyst Grubman’s rating of AT&T.; Last month, Weill declined a seat on the NYSE’s board after his nomination was slammed by regulators.