California Regulator Draws Fire for Dissent

A tussle between state regulators intensified Wednesday as some of those negotiating a settlement over Wall Street analysts’ conflicts of interest openly criticized California’s top securities cop for speaking out against the proposed deal.

A key negotiator for the state regulators, Maine’s Christine Bruenn, said she was “taken aback” by Demetrios A. Boutris’ public questioning this week of the proposed accord because his own staff had signed off on the key elements.

Bruenn is president of the North American Securities Administrators Assn. and a member of the group negotiating a settlement with a dozen Wall Street brokerages that is expected to result in fines of more than $1 billion against the firms. The group includes states’ securities regulators and representatives of the Securities and Exchange Commission, the New York Stock Exchange and the NASD (formerly the National Assn. of Securities Dealers).

“I was with their representative on Monday, and they [California officials] were in full agreement with the negotiating position we had taken,” Bruenn said in an interview Wednesday. Sources have said that most of the companies are being asked to pay fines ranging from $25 million to $75 million, with Citigroup Inc. and Credit Suisse First Boston paying considerably more.

However, Boutris told The Times on Monday that the proposed settlement was too lenient and that every firm included in the deal should pay at least $100 million in cash penalties. Boutris, commissioner of the state’s Department of Corporations, reiterated the position Tuesday in news interviews.

“I was just really surprised,” Bruenn said. “This negotiating position in public isn’t the same as we were hearing in private.” She declined to discuss the firms or dollar amounts involved.

Boutris, through a spokeswoman, declined to comment on Bruenn’s remarks. However, his top deputy, William Kenefick, said Wednesday that he and his boss believed all along that penalty amounts being discussed for some firms were too low.

In a conference call last weekend with Bruenn and other regulators, Kenefick said, he was asked to make “an accommodation” regarding one specific investment bank. “I said, ‘OK, $75 million -- firm,’ ” he recalled. Ultimately, Kenefick added, “we weren’t getting any support for that,” and the issue was dropped.

Bruenn and other regulators were surprised to hear Boutris then declare that $100 million ought to be the minimum.

“I don’t think California’s position at all represents the mainstream in these negotiations,” Indiana Securities Commissioner Bradley Skolnik said Wednesday.

A spokeswoman for New York Atty. Gen. Eliot Spitzer, whose initial investigation of conflicts at Merrill Lynch & Co. and other Wall Street firms paved the way for the states’ effort, also distanced his office from Boutris’ position.

Despite California’s opposition, “There is tremendous consensus for a ‘global’ settlement,” Spitzer’s spokeswoman, Juanita Scarlett, said.

Even as Boutris was leveling his criticism this week, a spokesman for his office said California wasn’t considering withdrawing from the settlement or taking steps to derail it.

It would be difficult to reach a truly comprehensive agreement without California’s participation, one regulator said Wednesday, in part because the brokerage firms may balk at a deal that leaves them open to more strictures and cash penalties from the nation’s most-populous state.

Other state regulators were cautiously optimistic that California ultimately would join the fold. They said it would be expensive and risky for the state to undertake its own investigation.

Big as it is, they said, California probably would lack the negotiating clout to get more money on its own than it could win as a share of the global settlement.

On the other hand, California long has been regarded as a maverick in its dealings with other state regulatory agencies, one state securities chief said.

In fact, he conceded, Boutris’ contrarian position could ultimately result in the Wall Street firms paying more money into the settlement pot.