Brokerages Balk at Hefty Settlements

About half a dozen investment banks are refusing to pay large fines to resolve government investigations of their stock analysts, a development that could scuttle months of negotiations aimed at reaching an industrywide settlement of probes into alleged Wall Street misdeeds, regulators said Tuesday.

The firms, including Lehman Bros. Holdings Inc. and UBS Warburg, are scoffing at demands that they pay fines of $50 million to $75 million each. Instead, some companies want to shell out as little as $15 million, one source said.

Their resistance threatens to unravel a hoped-for “global” settlement that would end multiple state and federal inquiries into Wall Street practices during the late-1990s bull market, several state regulators said. The regulators have been probing allegations that stock analysts intentionally misled investors with their stock picks and that the firms broke rules regarding the allocation of initial public stock offerings.

Until this week, the talks appeared to be progressing well, and some participants had hoped to reach tentative agreements on penalty amounts by Friday. Regulators will hold a series of critical one-on-one meetings with the firms through the end of the week.

But over the last two days, a handful of firms have balked at anteing up, several regulators said. That could be a negotiating ploy, government officials concede, but they nonetheless say they’re worried by the firms’ new intransigence.

“I’m discouraged because I don’t think we’re going to be able to do a global resolution,” said Christine Bruenn, the top regulator in Maine and the head of an organization of state securities officials. “We’re going to end up in litigation and are still going to be looking at each other in courtrooms or across conference tables a year from now.”

Both sides have strong incentives to forge a deal. The investigations have been time-consuming for regulators, and the securities houses want a neatly packaged end to their legal woes.

The regulators insist that they will not accept low-ball penalty payments and will pursue court cases if necessary.

“If I continue my investigation, it’s only going to get worse for them,” said Joe Borg, the securities regulator in Alabama.

The firms that are scoffing at paying large fines also include Deutsche Bank, U.S. Bancorp Piper Jaffray Inc. and Bear Stearns Cos., sources said. Goldman Sachs Group also has sent signals that it is unwilling to pay the $75 million requested of it, sources said.

Spokespeople for the firms either declined to comment or could not be reached Tuesday.

The brokerages have argued that they did nothing wrong or that the level of wrongdoing by their analysts was isolated and far less egregious than that of some competitors, sources said.

“There are different amounts of evidence against different firms,” said an official at one brokerage. “You want to be fined for what you’ve done and what they can prove that you’ve done.”

For the most part, the companies balking at paying large fines have not been subjected to the torrents of bad publicity that have washed over rivals such as Citigroup’s Salomon Smith Barney unit and Credit Suisse First Boston.

The bad publicity for those firms has come in the form of incriminating e-mail messages leaked to the media in which analysts appeared to admit giving bullish stock advice solely to lure investment banking work from the subject companies.

Citigroup and CSFB have shown a willingness to settle with regulators, sources said. However, they too have sought to reduce the penalties they pay.

State officials say they have turned up damning evidence against the brokerages with lower profiles, even if that evidence hasn’t been made public.

“The firms would be ill-advised to believe that the lack of e-mails in the press equates to a lack of evidence against them,” said Tanya Solov, director of the Illinois Securities Department.

An official at one firm predicted the rest would eventually fall into line.

“Are some people complaining about what they have to pay? You bet,” the official said. “At the end of the day, would it make the settlement fall apart? I’d be amazed.”