Banc of America Settles with the SEC on Research

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New York – An article in the Wall Street Journal this morning reports on the long running SEC investigation into the Banc of America regarding front running research recommendation releases over the period from 1999-2001. Adding to the list of Wall Street firms that have settled allegations with the SEC, Banc of America has agreed to pay fines of $26 million without admitting or denying guilt in the case.

Just like in the other research settlement cases prosecuted within the 1999 to 2001 time frame, the Banc of America case reflects the endemic behavior that was prevalent at that time. The case has been under review for about 5 years, with most of the time being gobbled up in wrangling over the release of Banc of America’s email records of other documents.

The settlement, after five years, has a positive or a negative implication. On the one hand, the SEC can be characterized as a champion of the investor doggedly pursuing all those that would presume to front run the investing public. On the other hand, some could see the SEC as somewhat inert in its ability to prosecute the IBs.

In any case, the result is the same for the research providers – there is a distinct need to have the research process supported by policies and procedures, a designated compliance officer, appropriate research disclaimers, and, potentially,  third party verification of this process. This means that even those RPs covered under the so-called “publishers exemption” ought to adopt policies and procedures and craft research disclosures as if they were subject to NASD 2711 and Reg AC.

We include the link the WSJ article.

Comment by Bill George:
Your last paragraph in this article deserves significant emphasis, so I will repeat it here in this comment:

“In any case, the result is the same for the research providers – there is a distinct need to have the research process supported by policies and procedures, a designated compliance officer, appropriate research disclaimers, and, potentially, third party verification of this process. This means that even those RPs covered under the so-called “publishers exemption” ought to adopt policies and procedures and craft research disclosures as if they were subject to NASD 2711 and Reg AC.”

I believe that the Securities and Exchange Commission’s recent “No Action Letter” relating to the Goldman Sachs Research Xpress (sm) service and the SEC’s new position on CSA CCA structures increases the importance of the mentioned policies, process, compliance and particularly third party verification and oversight.

The recent changes and re-interpretation of the “provided by” clause of Section 28(e) may introduce an oversight and regulatory void, and that has the potential to invite significant conflicts of interest and fraudulent behavior.

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