Judge Seeks Details on Wall St. Settlement

The judge overseeing a $1.4-billion settlement of claims accusing Wall Street firms of biased stock research said Thursday that he wants more details before approving the pact, the second time in a month he has done so.

U.S. District Judge William Pauley, who presides over the case in New York, asked whether investment banks plan to seek tax deductions or to ask insurers to cover their payments. He also wants to know whether proposed conflict-of-interest rules regarding bank analysts will apply to the firms’ foreign affiliates.

“He doesn’t want to leave them with any wiggle room,” said Barbara Roper, investor protection director for the Consumer Federation of America.

Pauley’s approval is required before investors receive any of the $1.4 billion. The Securities and Exchange Commission, which helped state and federal regulators negotiate the agreement, has said that investors may have to wait at least 1 1/2 years after approval of the settlement until they get any money, as procedures are established and claims are evaluated.

Pauley asked which securities are covered by the pact and how many shares were purchased by customers of each bank. He said the banks’ answers would help determine which investors are covered by a damages fund set up pursuant to the settlement.

The judge also wanted to know what audit procedures exist for a planned investor education fund. Pauley finally asked the parties whether he could approve the agreement while some details of it remain unresolved.

“It seems to me that he’s trying to lock them into a commitment,” Roper said.

The judge gave the banks and the SEC until July 18 to respond to his questions.

On June 3, Pauley asked the banks and the SEC to respond to an earlier round of questions about the finality of the pact and its tax implications. They answered those queries last month.

Ten firms, including Citigroup Inc. and Merrill Lynch & Co., agreed to the settlement in April to resolve regulatory charges that stock analysts tailored their advice to investors to help the firms win banking business. The amount is the biggest ever for alleged violations of securities laws.

Representatives of Citigroup and Merrill Lynch declined to comment.