Regulators Ready to Assess Fines

Settlement talks between securities regulators and Wall Street investment banks will enter a crucial phase Friday when the government begins telling the firms how much they would have to pay to resolve investigations of stock-analyst conflicts, sources close to the negotiations said Wednesday.

Regulators will seek fines from 12 firms that could total as much as $1 billion, the sources said. Regulators want Citigroup Inc. to pay a fine of $300 million to $400 million, one source with knowledge of the talks said. The nation’s largest financial-services company has been at the center of the investigations, most recently becoming mired in a controversy over its chief executive’s efforts to help the children of a former employee gain entry to a preschool.

Regulators plan to seek substantially smaller fines from other firms, ranging from $25 million to $100 million, another source said.

The discussion of monetary penalties is considered one of the final steps toward reaching a “global” settlement of multiple government investigations of conflicts of interest among Wall Street analysts and the way shares of new-stock offerings were distributed during the height of the 1990s bull market.

It is unlikely that a deal could be reached by Thanksgiving, but participants hope to hammer out an agreement by the end of the year.

Besides fines, regulators also would force the investment banks to purchase stock research from independent firms and distribute it to their customers alongside their own in-house stock reports, sources said. The settlement also would implement new rules separating the firms’ investment-banking departments from their stock research units.

State and federal regulators will hold individual meetings with the 12 companies Friday, Monday and Tuesday in New York and Washington, sources said.

Regulators will lay out the evidence assembled against each firm and the legal charges they probably would bring if a settlement is not reached. In addition to the fines, regulators will tell the investment banks how much each would have to pay to fund the independent research. Those subsidies could total an additional $1 billion.

The penalties would be based on the degree of alleged wrongdoing, though smaller firms would be assessed lesser amounts, sources said. The firms would be given a few days to respond, presumably with counteroffers.

Regulators will meet Friday with Citigroup and with Credit Suisse First Boston, a unit of Credit Suisse Group, sources said. They will meet Monday with Goldman Sachs Group, another major Wall Street firm. Spokespeople for the three companies declined to comment.

In the plan for independent research, each firm would have to appoint a monitor to oversee the purchase and distribution of stock reports done by outside firms, sources said. The monitor would have to be an outside consultant who is not on the firm’s in-house staff, sources said. The monitor would negotiate the cost of the independent research and would have to attest to regulators that it is free of conflicts with the brokerage.

The fines paid by the firms would be split evenly between federal regulators and the various states, a source said.

The money going to the states would be used for various purposes, including investor education and to bolster state budgets, some of which are suffering deficits brought on by the weak economy.

State officials considered setting up investor restitution funds, but have decided against it because it would be too cumbersome and costly, and it would be impossible to determine exactly who are victims and how much they would be entitled to, sources said.

Federal officials are considering creating an investor restitution fund, though no decisions have been made, sources said.