Spitzer Issues Warning to Wall Street Firms

New York Atty. Gen. Eliot Spitzer on Thursday issued a warning to Wall Street: Join his efforts to reform the industry and end conflicts of interest in stock research or get used to being investigated.

Addressing lawyers for the 10 largest brokerage firms in a meeting to settle industry probes, Spitzer said he was prepared to “dig through e-mails for the next five years” to uncover more evidence against the companies, people familiar with the meeting said. Spitzer made the remark after each side complained that the other leaked details about the talks.

Regulators and the securities firms, which met at the New York Stock Exchange, are working to reach an agreement to end investigations that have pummeled brokerage firms’ shares and their images this year.

To settle allegations that they deceived investors with misleading stock recommendations, securities firms are ready to pay as much as $1 billion to subsidize non-investment banking firms that produce market research.

The attorney general and Securities and Exchange Commission enforcement chief Stephen Cutler last week gave major brokerages a five-page proposal aimed at settling the dispute.

The two sides are holding talks to come to terms on issues in that proposal that remain unresolved. These include whether the firms will be required to pay fines to states and restitution to investors as well as how much contact analysts can have with bankers, sources said.

The firms have agreed in principle with the regulators’ plan to subsidize independent research and insulate research departments from banking pressures.

The firms have told regulators that any settlement should resolve all issues at once and include fines and restitution. Cutler said Thursday that he would provide the firms with more information about possible fines next week, sources said.