NEW YORK (CNN/Money) - Former Merrill Lynch Internet analyst Henry Blodget has agreed to pay a $4 million fine and will be barred from the securities industry for life, a source familiar with a proposed Security and Exchange Commission settlement with the brokerage industry told CNN Monday.
As previously reported, former Salomon telecom analyst Jack Grubman has agreed to pay a $15 million fine and is barred for life from the industry.
Blodget and Grubman became symbols of the conflicts of interest among Wall Street research analysts. Those analysts touted companies that also gave those analysts' firms lucrative investment banking business.
The $1.4 billion settlement between the firms and regulators originally was announced in December, but hammering out details has taken more than four months.
Securities regulators from around the nation will meet at the Securities and Exchange Commission Monday to announce final terms of the deal that ends a probe into bull market abuses on Wall Street, according to a source who worked closely on the settlement. The announcement is due at 1 p.m. ET.
The SEC, which is expected to approve the deal outlined in December, has not yet signed off. But approval from the five-member commission is the only hurdle in the way of the afternoon press conference in Washington D.C., according to the source, who spoke on the condition of anonymity.
Accused of duping investors with tainted stock research, Citigroup's Salomon Smith Barney, Credit Suisse First Boston, Merrill Lynch, Morgan Stanley, and Goldman Sachs are among the firms signing off on the deal. They'll be paying a total of $1.435 billion that will partially go to funding the kind of independent research whose absence, regulators say, enabled thousands of money-losing investment decisions during the late 1990s.
|Eliot Spitzer outlining the December deal.
On Dec. 21, ten firms including J.P. Morgan Chase and UBS Warburg agreed to the draft of the settlement that includes the customary lack of admission or denial of wrongdoing. Monday's deal, according to the source, will contain similar wording but will go farther in detailing company-specific improprieties and conflicts of interest that could fuel shareholder lawsuits.
The banks have prepared for this. J.P. Morgan, for example, this year set aside $900 million to pay for lawsuits. The banks can also afford it. Citigroup's net income rose 6 percent to $15.2 billion in 2002
Still, a stream of embarrassing revelations leaked during a two-year investigation have hurt the reputation of the securities industry, which has been cutting tens of thousands of jobs to save money during the worst bear market in a generation.
Regulators at the SEC, the New York Stock Exchange, and the New York State Attorney General's office have spent the last four months negotiating with bank lawyers about the final language of the pact. Investment firm representatives have been fighting to tone down the language, with each also wary that their firm might appear in a worse light than a rival, according to the source.
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"They didn't want to be perceived as any worse than their competitors," the source said.
The Alabama securities regulator dealt with Lehman Brothers, while Utah hashed out terms with Goldman Sachs. The regulator with the highest profile was New York's Attorney General Eliot Spitzer, who addressed the topic at a luncheon earlier this month.
"The word 'fraud' will be in some of the documents that are the settlement documents," Spitzer said. He added, "I believe very deeply that at its root what was going on with the analysts and the investment bankers was probably the largest fraud ever committed upon the investing public."
Critics contend that investors, intoxicated during the stock market's money-making years, ignored well-known conflicts between research and banking.
But regulators allege that the mostly upbeat stock research was essentially a marketing tool to lure investment banking clients. E-mails leaked to the press have shown that some securities analysts, because of pressure from their bosses, publicly touted stocks they privately disparaged.
As a remedy, the firms must change the way they conduct business by separating stock research from investment banking. As for the fines, in addition to funding independent research, some money will go to investor restitution and some to education.