SEC, Brokerages Near Final Settlement

The Securities and Exchange Commission is expected to vote this week, possibly as early as today, to approve a long-awaited, $1.4-billion legal settlement in the Wall Street stock analyst scandal.

In a move billed as key to changing how brokerage firms do research, sources familiar with the matter said, the final deal involves 10 brokerages and includes agreements on insurance coverage, but not tax deductibility -- sensitive issues on Capitol Hill.

Sen. Charles E. Grassley (R-Iowa) said Monday that he feared brokerages could deduct part of the settlement’s cost from their taxes or have insurers pick up part of the tab.

In the final settlement, the brokerages have agreed not to seek insurance coverage, but no parallel deal is included on tax deductibility, a source familiar with the matter said.

Grassley also said he was worried the SEC will not publicly disclose the terms of the settlement before voting to approve it.

An SEC spokesman declined to comment on Grassley’s remarks.

Probes by New York Atty. Gen. Eliot Spitzer, other state regulators and the SEC have alleged some brokerage analysts issued slanted research on corporations to help drum up investment banking business for their brokerages.

The investigations -- focused mainly on research done during the late 1990s technology and telecommunications stocks bubble -- further damaged investor confidence shaken by accounting scandals at Enron Corp. and elsewhere. In a major embarrassment for Wall Street, the probes centered on the activities of analysts such as ex-Merrill Lynch & Co. star Henry Blodget and Jack Grubman, a former top analyst at Citigroup Inc.’s Salomon Smith Barney unit.

On Dec. 20, Spitzer and the SEC said 10 brokerages had agreed to pay $1.4 billion to settle the probes. Two other brokerages later joined the so-called global settlement, raising its value to about $1.5 billion.

But two brokerages -- Germany’s Deutsche Bank and San Francisco-based Thomas Weisel Partners -- have since dropped out of the settlement, cutting its value back to about $1.4 billion. Deutsche, which has discovered additional e-mails, was expected to conclude a separate deal later.

After the December announcement, talks toward finalizing the settlement hung up on several issues. One was whether the brokerages would be able to seek tax deductions and insurance coverage for the fines and restitution they must pay.