CSFB Fills Research, Legal Oversight Post
Credit Suisse First Boston on Monday said it named Gary Lynch vice chairman in charge of stock research and legal and compliance issues, as the brokerage attempts to bolster its analysts’ image in the aftermath of allegations of conflicts of interest across the industry.
Lynch, who was enforcement director of the Securities and Exchange Commission from 1985 to 1989, was one of CSFB Chief Executive John Mack’s first hires and had already been the firm’s global general counsel.
Lynch has taken the lead in negotiating a settlement with regulators from Massachusetts and the NASD (formerly known as the National Assn. of Securities Dealers) who have alleged that CSFB used tainted stock research to win investment banking business.
The investigations of CSFB are part of a broader probe by the federal government and by states into brokerage analysts’ conduct during the bull market’s heyday of the late 1990s.
The brokerage industry now is negotiating a global settlement with regulators. The talks are expected to result in large fines and major reforms. A deal is expected before year’s end.
CSFB and other brokerages already have tightened controls in their research departments after regulators this year disclosed e-mails showing analysts privately disparaging stocks they publicly praised.
“It shows the importance John Mack attaches to these issues,” said Lynch, who will become one of three vice chairmen at the firm. “He’s very serious about making sure we’re at the forefront of change on Wall Street.”
CSFB previously said its research analysts would no longer report to bankers such as technology chief Frank Quattrone, who had oversight of research until July 2001.
Also, the firm, like many other brokerages, has simplified its stock recommendations to buy, sell and hold, and prohibited compensation for analysts based on investment banking transactions.
Massachusetts Secretary of the Commonwealth William Galvin has alleged in a complaint that CSFB’s investment banking division controlled the research department and acted contrary to the interests of average investors. CSFB has denied the charges.
Lynch, 52, was a partner at law firm Davis Polk & Wardwell in New York before being hired by Mack in August 2001. He helped negotiate a $100-million settlement in January of allegations that CSFB allotted sought-after shares of initial public offerings in exchange for investor kickbacks in the form of higher commissions.
As SEC enforcement chief in the late 1980s, Lynch oversaw cases against Ivan Boesky, Michael Milken and Drexel Burnham Lambert.
At Davis Polk, Lynch was hired by General Electric Co. to review its Kidder, Peabody & Co. unit after the firm lost $210 million from bond trades that Kidder alleged were made by government bond trader Joseph Jett.
Lynch’s promotion at CSFB follows steps taken by other firms to bolster the independence of their stock research.
Citigroup Inc. in October created a unit for its brokerage and equity research departments to separate analysts from bankers and named Sallie Krawcheck, the chief executive of independent research firm Sanford C. Bernstein & Co., to lead the unit.
Goldman Sachs Group Inc. in May named E. Gerald Corrigan, the former president of the Federal Reserve Bank of New York, to a new post as research ombudsman.
