First, Wall Street banks denied they broke any laws. Now, they want to decide which laws they claim were not broken.
As investment banks such as Citigroup Inc.'s Salomon Smith Barney and Credit Suisse First Boston hammer out the fine print of a settlement with securities regulators over alleged wrongdoing during the market boom, the latest sticking point has been the specific charges that theoretically would have been filed had a settlement not been reached, according to a person familiar with the settlement talks.
The Securities and Exchange Commission and state regulators are compiling reports of their findings on individual banks that eventually will be opened to the public. They are expected to include the specific securities laws each bank is suspected of violating.
Under the terms of a preliminary agreement reached last month, 11 investment banks agreed to pay a total of $1.4 billion in fines in exchange for protection against any criminal charges for alleged securities laws violations.
To help protect themselves against thousands of pending civil suits, investment banks refused to admit to any wrongdoing within the settlement.
But plaintiffs' attorneys representing private investors hope to bolster their cases when the so-called reports of findings are made accessible. For that reason, investment banks are pressuring regulators to tone down the wording in their complaints.
Specifically, banks want them to invoke fewer securities laws that involve fraud and instead use lighter regulations more akin to misdemeanors in the corporate world.
"There's going to be some jockeying with regulators to try to make these charges appear less sinister," said Dennis Orr, a litigator at New York-based Mayer Brown Rowe & Mawe. "None of this would have a conclusive impact, but it's worth haggling over."
In theory, allegations of fraud should have no bearing on a civil suit. From a perception point of view, however, lawyers defending banks on fraud charges can benefit from being able to say: "Look, the federal regulators didn't even accuse us of that," Orr said.
The plaintiffs' lawyers representing investors who claim to have been defrauded are hoping New York Atty. Gen. Eliot Spitzer and other regulators will stay tough when drafting the complaints.
"It's an attempt to minimize the charges and make them as milquetoast as possible," said J. Boyd Page of Atlanta-based firm Page Gard Smiley & Bishop, who represents clients suing Salomon Smith Barney. "It's a type of coverup and I hope regulators push back."
Regulators are drawing from an array of federal and state securities laws, as well as from the rules used by securities authorities such as the New York Stock Exchange and NASD, formerly known as the National Assn. of Securities Dealers.
Banks such as Salomon Smith Barney or CSFB, which were exhaustively investigated and paid the highest fines, may have less leverage to dictate specific charges than banks such as J.P. Morgan Chase & Co. and Lehman Bros. Holdings Inc., which largely escaped the regulators' microscope.
Negotiators also are working on the specifics of the future relationship between investment banking and research departments. It is settled that analysts no longer will be able to help pitch investment-banking deals. Further, their compensation packages cannot be linked to investment-banking business.
But banks want analysts to continue to be involved in vetting investment-banking deals and structuring clients' stock sales.
Banks are waiting for copies of the revised complaints to review them again, the person familiar with the talks said. A final agreement could take another month to complete, sources said.