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Goldman Sachs Group

10 banks fined $43.5M for research violations

Kaja Whitehouse
USA TODAY
epa04506454 A view of the 'Toys R Us' store logo sign at Times Square in New York, New York, USA, 27 November 2014. Retailers in the United States have looked to the Friday after Thanksgiving, known as Black Friday, as an opportunity to make a large amount of holiday sales, though the tradition in recent years has been pushed into Thanksgiving evening. EPA/JOHN TAGGART ORG XMIT: JLX

CORRECTION: An earlier version of the story incorrectly stated the amount of Deutsche Bank's $4 million fine.

Ten investment banks, including Goldman Sachs and JPMorgan, were fined $43.5 million for violating rules prohibiting their analysts from promising favorable research coverage in exchange for lucrative investment banking business.

The Financial Industry Regulatory Authority (FINRA), Wall Street's self-regulatory body, said Thursday each of the 10 banks used their research analysts to help them compete for an underwriting role in Toys "R" Us' planned initial public offering in 2010. The analysts were to have rated the company's shares after the IPO.

A Goldman Sachs banker sent an email to a colleague saying he wanted the message from the investment banking team and the analyst to be "tightly coordinated" and "consistent," FINRA said.

"He's an advantage for us," the banker said of the analyst, according to FINRA.

An analyst with Needham blasted a rival firm's move to cover the toy industry as "shameless positioning to get a certain upcoming toy IPO."

But, the Needham analyst added, he "would do it too," FINRA said.

"I would crawl on broken glass dragging my exposed junk to get this deal," the Needham analyst wrote in an email, according to FINRA.

Toys "R" Us was taken private in 2005 when it was acquired by an investment group that included Mitt Romney's former private equity firm, Bain Capital, Kohlberg Kravis Roberts and Vornado Realty Trust.

The firm eventually decided not to proceed with the stock offering.

Barclays, Citigroup, Credit Suisse, Goldman Sachs and JPMorgan were all fined $5 million. Deutsche Bank, Merrill Lynch, Pierce, Fenner & Smith, Morgan Stanley and Wells Fargo Securities were fined $4 million, while Needham & Company was fined $2.5 million.

None of the banks admitted wrongdoing in the settlement, FINRA said.

Many of the same banks were forced to fork over $1.4 billion in 2003 after a probe by then-New York State Attorney General Elliot Spitzer revealed the banks were using their equity researchers to woo initial public offerings and other profitable investment banking deals. The tainted research, including "buy" ratings, was blamed for fueling the dot-com bubble.

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