Wall Street: How Hard a Wrist Slap?


Investors have lost their tolerance for shenanigans on Wall Street -- and none of the penalties that the Street's firms have accepted so far are likely to appease them (see BW Online, 12/20/02, "Spitzer's Slap: Small Change on the Street?"). That's the primary finding from our Dec. 13 Reader Survey on the topic of Wall Street's punishment for tainted research.

Of the 330 readers who responded, 81% thought both fines and jail time are appropriate for firms that bilk individuals -- and for the executives who run them. When it comes to fines, moreover, 75% thought the amount should be arrived at not so much via negotiation with authorities, but rather should be based on the amount of money investors lost as a result of a firm's misdeeds.

Some 49% of those who responded thought that a fine of more than $1 billion per Wall Street firm would be appropriate in the case of big-name brokerages. Some 23% would have settled for $500 million to $1 billion, while a scant 15% would have been satisfied with $100 million to $500 million per firm.

WORST OFFENDERS. A sign of how strongly investors feel is that 65% wanted fines to be levied without regard to whether the amount would endanger a firm financially, vs. the 29% who thought that the effect on a firm's viability should be taken into account. The companies -- not all banks -- that readers blamed for doing the most damage to investors in 2002 were, in order: Enron (ENRNQ), Merrill Lynch (MER), Citigroup (C), WorldCom (WCOEQ), and Tyco (TYC).

A majority of readers -- 64% -- thought sufficiently large fines would deter unethical activity in the future, while 25% doubted that they would. Significantly, some 87% of those who responded said they'll take into account a brokerage or investment bank's history of wrongdoing and fines when deciding who they'll do business with.

Incidentally, those who responded to the survey aren't fans of regulators, either: Some 86% characterize the job done by state and federal officials as reasonably bad or very bad. Here are the full results of the survey, which as always was unscientific, since anyone who wished to could participate:

Do you think the appropriate penalty for a firm that consciously

misleads investors should include:

Option

Total

%

Fines

20

6.10 %

Jail time for those responsible

35

10.67 %

Both

265

80.79 %

Neither

5

1.52 %

Not sure

3

0.91 %

In such an instance, should the fines levied be:

Option

Total

%

Negotiated by regulators and the companies that cheated

28

8.64 %

Based on the amount of money investors lost as a result of the misleading information

243

75.00 %

Assessed against individual wrongdoers, but not against their companies

47

14.51 %

Don't know

6

1.85 %

How large a fine do you think is appropriate for big-name Wall Street

firms that misled tens of thousands of investors?

Option

Total

%

Less than $100 million

19

5.83 %

$100 million to $500 million

48

14.72 %

$500 million to $1 billion

75

23.01 %

More than $1 billion

159

48.77 %

Not sure

25

7.67 %

Should regulators avoid levying fines so high that they leave the firms financially vulnerable?

Option

Total

%

No

212

65.23 %

Yes

95

29.23 %

Not sure

18

5.54 %

Do you think hefty fines against Wall Street firms will deter

them from engaging in unethical practices in the future?

Option

Total

%

Yes

210

64.22 %

No

82

25.08 %

Not sure

35

10.7 %

When you look for a broker or investment bank, do you take into

account its history of wrongdoing and fines?

Option

Total

%

No

23

7.10 %

Yes

283

87.35 %

Not sure

18

5.56 %

Based on what you've read in the news, which of the following companies do you think did the most harm to investors in 2002:

Option

Total

%

Merrill Lynch

61

18.83 %

Enron

138

42.59 %

Citigroup

56

17.28 %

WorldCom

54

16.67 %

Tyco

12

3.70 %

Adelphia Communications

3

0.93 %

Until now, how good a job do you think federal and state regulators have done at keeping brokerages and investment banks on the straight and narrow?

Option

Total

%

Very good

2

0.61 %

Reasonably good

38

11.59 %

Reasonably bad

89

27.13 %

Very bad

193

58.84 %

Not sure

6

1.83 %


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