NEW YORK, March 18 A U.S. district court ruled
this week against a request by major Wall Street banks to
modify a core element of the 2003 legal agreement that created
a firewall between research analysts and investment bankers.
The firewall, which was created as part of a pact between
the Securities and Exchange Commission and the banks,
essentially requires their research and investment banking
departments to have separate staffs and prohibits
communication between the two groups unless a compliance
officer is present.
In a Monday order, Judge William Pauley III of the Southern
District of New York said that he would not ease the rules
governing communication between the two departments, saying
that it would undermine their separation.
Pauley said that this modification would break down the
firewall that was put up by the SEC and the companies when they
settled in 2003.
The SEC reviewed and approved the requested changes,
according to letters from the banks to the judge that were
released on Wednesday.
The 2003 settlement came after the technology stock bubble
had burst and regulators released emails showing that some
research analysts had privately disparaged the stocks of
companies they publicly lauded. Many of those companies were
also investment banking clients, and the SEC filed complaints
against the banks.
The judge did allow other modifications requested in August
2009 by the companies, which include Morgan Stanley (MS.N) and
Citigroup (C.N) among others.
The SEC, Morgan Stanley and Citigroup were not immediately
available for comment.
(Reporting by Caroline Humer; Editing by Steve Orlofsky)