Lehman’s Research Practices called into Question


A former Lehman research analyst has raised some red flags about research practices at the former financial services firm.  Edward Parmigiani, who formerly covered the semiconductor industry for Lehman has alleged that information about upcoming stock upgrades and downgrades where used inappropriately by employees of the former bank.

Senator Charles Grassley of Iowa, who is the ranking Republican on the Finance Committee, wrote a letter to FINRA asking if the allegations raised by Mr. Parmigiani had been followed up on.  The letter gives a few specific examples of infractions allegedly committed by Lehman including one instance in 2005 when Mr. Parmigiani upgraded Amkor Technology.  Mr. Parmigiani sent the report to the internal group, which was responsible for broadcasting rating calls to the public, and between the time the report was sent and the time that the upgrade was made public knowledge Amkor’s stock had risen 12%.  Sen. Grassley’s letter also alleges that another analyst at one point claimed that he had to “get back to the office and start calling clients since [Lehman] is going to be downgrading U.S. Commodity Chemicals sector on the 2:15 pm today.”

The final allegation that Sen. Grassley’s letter makes is that Lehman violated the Global Settlement set up in 2003 by combining the interests of their research team with that of their investment banking practices.  The letter states that at one point a Lehman executive cautioned Mr. Parmigiani not to downgrade ChipPac Ltd. as Lehman was engaged in underwriting transactions for the firm.

Not many people are commenting on the story as the SEC (as usual), Mr. Parmigiani (through his lawyer) and Barclays (which acquired Lehman) have all declined to add any fuel to the fire.  The allegations were raised by Mr. Parmigiani as a result of an arbitration complaint about an employment dispute with Lehman and thus it could be argued that Mr. Parmigiani’s motives aren’t the most altruistic in the world.

Nevertheless, these allegations need to be taken seriously and investigated.  If true, they paint a picture showing that the Global Settlement was not as effective as some would have hoped; a disturbing fact which others have alluded to in the past.  Certainly we aren’t naïve enough to believe that these type of actions no longer take place on Wall Street however if the SEC can investigate and if appropriate punish those responsible, a difficult task considering Lehman’s current state, it may be possible to take some of the incentive away from the banks continuing these practices.


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