SEC Sleeping with the Enemy, wants to scap key portion of existing rules

By SUSANNE CRAIG And KARA SCANNELL
Wall Street Journal Online
The Securities and Exchange Commission joined 12 Wall Street firms in seeking to scrap a key portion of a landmark 2003 deal that put strict curbs on stock analysts, a move that could heighten the ongoing debate about a broad overhaul of the financial-regulatory system.

In a ruling Monday, U.S. District Judge William H. Pauley III in New York rejected a proposed change to the legal settlement put in place to end abuses on Wall Street. The proposal would have allowed employees in investment-banking and research departments at Wall Street firms to "communicate with each other…outside of the presence" of lawyers or compliance-department officials responsible for policing employee conduct—an activity strictly prohibited by the settlement.

The settlement came soon after the bursting of the technology-stock bubble, which was caused in part by overly optimistic reports from Wall Street analysts that sent stocks soaring. After the bust, it was revealed that many of those analysts were touting stocks at the behest of their firms' investment-banking operations, which were profiting from initial public offerings. One solution to the conflict of interest was separating the analysts from the investment-banking operations.

"The parties' proposed modification would deconstruct the firewall between research analysts and investment bankers erected by the parties when they settled these actions," Judge Pauley wrote in his ruling. Approving the request by the SEC and securities firms "would be inconsistent with" the settlement "and contrary to the public interest."

Securities firms covered by the settlement, including Goldman Sachs Group Inc., Morgan Stanley and the Merrill Lynch & Co. unit of Bank of America Corp., declined to comment.

SEC spokesman John Nester said the agency believes there are other restrictions in place, such as keeping analysts and bankers physically separated and prohibiting bankers from influencing analyst coverage decisions. In a letter requesting the change, the SEC and banks had stated "it is appropriate to eliminate" certain provisions because the conduct is now covered by new rules and regulations.



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Grandpa:
This proposal would have allowed employees in investment-banking and research departments at Wall Street firms to “communicate with each other…outside of the presence” of lawyers or compliance-department officials responsible for policing employee conduct—an activity strictly prohibited by the settlement.

The SEC states there are already other restrictions in place such as keeping analysts and bankers physically separated! What! No one car pools, shares the train, meets for cocktails or the back yard for a nice Saturday afternoon barbeque???

Meanwhile back in congress, financial reform with teeth has yet to be drafted let alone implemented. We, THE PEOPLE are seeking enhanced financial reform measures while the SEC is attempting to dilute existing protocol! Wall Street and the SEC watching each other's backs.