Capital Markets

The Check Is (Almost) in the Mail

Investors will finally see their share of the 2003 ''global settlement.''
Stephen TaubDecember 22, 2005

A large number of people who were victims of Wall Street research abuses may wind up with a pleasant holiday surprise — a check from the Securities and Exchange Commission, courtesy of one Francis E. McGovern.

A law professor at Duke University, McGovern is also the administrator for the $440 million restitution fund that represents the SEC’s share of the $1.4 billion “global settlement.” The 2003 settlement — between Wall Street firms and the commission, the National Association of Securities Dealers, the New York Stock Exchange, New York Attorney General Eliot Spitzer, and a number of states — stemmed from charges that securities analysts wrote upbeat reports about questionable companies so they could secure lucrative investment banking deals.

Wall Street firms were also required to separate their research and investment-banking operations; most firms’ research budgets have shrunk considerably.

This week, more than two years after the settlement was announced, U.S. District Judge William H. Pauley III approved the distribution of 15,000 to 20,000 checks that make up most of the $440 million, reported The New York Times. About two-thirds of the checks will be mailed by the end of the year, according to the paper, which cited McGovern.

Some claimants — which include trust funds and mutual funds as well as individuals — will receive as little as $100, McGovern reportedly said; the largest check is for $15 million. McGovern told USA Today that most victims will probably recoup 100 percent of their losses.

According to the Times, the restitution money came from the 11 firms that settled and from former Merrill Lynch analyst Henry Blodget, one of a handful of individuals who personified the euphoria over Internet stocks during the late 1990s. Blodget paid $4 million in penalties to settle with regulators, the paper noted.

It is good news, said SEC chairman Christopher Cox, in a statement, “that most of the check are going to everyday investors across America, none of whom had to hire lawyers or pay any of the costs of the distribution. Every dollar collected by the commission in this settlement will go back where it belongs — into the victims’ pockets.”

The deadline for all checks to be mailed, reported the Times, is January 22, 2006.

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