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Goldman follows Merrill
Goldman Sachs announces new policy for its research analyst business.
May 21, 2002: 5:05 PM EDT

NEW YORK (CNN/Money) - Less than an hour after the New York State Attorney General called on Wall Street brokerages to look at his settlement with Merrill Lynch as a model for reforms, Goldman Sachs announced new policies regarding research analysts.

Goldman said Tuesday it is implementing a number of initiatives on top of rule changes recently adopted by the Securities and Exchange Commission designed to prevent banking relationships from influencing the ratings stocks receive.

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The changes include the creation of a research ombudsman position and a review of analyst compensation.

Earlier Tuesday, Merrill settled its suit with New York Attorney General Eliot Spitzer over conflicts of interest between its research and banking arms. In addition to paying $100 million, Merrill agreed to reforms designed to ensure analysts' salaries are not tied to any investment banking business they generate.

Spitzer said at a news conference the reforms are intended to become the "industry standard," and invited all major Wall Street firms to review their e-mails and documents and "come in and have some forthright discussions with us."

Goldman said it has appointed E. Gerald Corrigan, former president and CEO of the Federal Reserve Bank of New York, as its research ombudsman. Corrigan will report directly to Goldman Chairman and CEO Henry M. Paulson.

The firm also said its Board Compensation Committee will review how analysts are paid.

Goldman said it "has never compensated its investment research analysts based on a formulaic percentage of investment banking revenues," but said it is mindful "compensation has been a focal point of the debate over analyst integrity."

On May 8, the SEC adopted a set of rule changes developed in cooperation with the National Association of Securities Dealers and the New York Stock Exchange.

Those rules bar tying analysts' pay to specific investment banking deals, block analysts from issuing favorable opinions on stocks in return for banking business, and prohibit them from being supervised by the investment banking department.

Other provisions require more disclosure in reports, including a chart tracking analysts' recommendations in relation to stock prices and restrictions on personal trading by analysts.

Among the other leading brokerages, Salomon Smith Barney said "investor confidence is paramount, and we are continuing to review steps, beyond those we've already taken, that will further this important goal."

Credit Suisse First Boston said they may have a statement later in the day.

Morgan Stanley declined to comment, and Lehman Bros. did not return calls requesting comment.  Top of page