SEC Puts Off Vote but Nears Deal With Brokerages

The Securities and Exchange Commission on Thursday once again put off a vote on a proposed legal settlement with Wall Street brokerages, but the deal is almost finalized and is expected to be unveiled Monday, people close to the matter said.

The deal calls for the firms to pay about $1.4 billion and implement a number of reforms to resolve state and federal probes into whether analysts talked up the stocks of companies to lure corporate financing work.

A point of controversy that has developed in recent days is whether the payments by the firms would be tax deductible and eligible for reimbursement by their insurance companies. Federal lawmakers and outside observers have voiced concerns that the firms’ out-of-pocket costs could be reduced considerably, thus lightening their ultimate punishment.

The deal calls for several types of payments, including fines, subsidies for investor education and restitution to investors, sources said. Fines generally are not tax deductible, but restitution is, sources said. It is unclear whether other payments are deductible.

According to one source, the settlement contains language saying the commission does not intend for the non-restitution payments to be tax deductible or eligible for reimbursement.

Sen. Charles E. Grassley (R-Iowa), chairman of the Senate Finance Committee, has pushed for tough provisions to prevent the firms from deducting non-restitution payments or being reimbursed by their insurers.

“I hope any SEC language on deductibility and insurance coverage will be as strong as possible,” Grassley said in a statement.

Grassley has argued that the Internal Revenue Service would consider the SEC’s position when deciding whether to allow the payments to be deductible.

A Finance Committee staffer said it is uncertain whether the SEC wording would be strong enough to prevent the firms from lightening their burden.