10 Firms Fined for Allowing Equity Analysts to Solicit IB Business
FINRA has fined 10 firms a total of $43.5 million for allowing their equity research analysts to solicit investment banking business and for offering favorable research coverage in connection with the 2010 planned initial public offering of Toys R Us.
Those firms are: Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA), LLC ., Goldman, Sachs & Co. , JP Morgan Securities LLC , Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Inc. , Morgan Stanley & Co., LLC., Wells Fargo Securities, LLC ., Needham & Company LLC..
In April 2010, Toys R Us and its private equity owners invited those 10 firms to compete for a role in Toys R Us’ planned IPO. But each of the firms used their analysts to solicit investment banking business from Toys R Us and offered favorable research. Eventually Toys R Us decided not to proceed with the offering.
FINRA’s research analyst conflict of interest rules make clear that firms may not use research analysts to offer, or promise to offer, favorable research to win investment banking business.
In addition, FINRA found that six of the 10 firms — Barclays, Citigroup, Credit Suisse, Goldman Sachs, JP Morgan and Needham — had inadequate supervisory procedures related to research analyst participation in investment banking pitches.
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