Another settlement on Wall Street

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KAI RYSSDAL: This just in from the Marketplace Desk of Yet Another Wall Street Settlement. Some of the big brokerage houses in New York have agreed to pay regulators a combined $13 million. Bear Stearns, Citigroup, Goldman Sachs, and Morgan Stanley are just a couple of the names you'll know. They were accused of manipulating auctions for corporate and municipal bonds. Marketplace's Amy Scott has the details.


AMY SCOTT: The settlement involves what are known as auction-rate bonds. These are bonds whose interest rates are reset from time to time through a blind auction process. Regulators say 15 brokerage houses abused or manipulated those auctions. Sometimes they allowed customers to submit or change a bid after the deadline. Others may have coached clients on what to bid.
ROBERT LAMB: This was a way to make possible that customers that you valued because of their ongoing business with that brokerage firm were taken care of.

That's New York University management professor Robert Lamb. Other times, regulators say brokers asked clients to bid in a specific auction to prevent it from failing for lack of interest. Joseph Fichera advised the SEC on the settlement. He declined to comment on the specifics. But he says in the late 1980s Lehman Brothers lost a pile of money when an auction failed to attract enough buyers.

JOSEPH FICHERA: They had to write off over $100 million as a result of the failures of that auction. So there was a strong incentive in this marketplace not to have a failed auction.

Some fear the relatively weak fines don't provide enough incentive to play clean. Marilyn Cohen wrote "The Bond Bible."

MARILYN COHEN: The restitution that the brokerage firms have to pay is a pittance. I mean, what a joke. That's coffee money for them.

An SEC official said these are "measured sanctions" because the firms cooperated. And the investigation's not over yet.

In New York, I'm Amy Scott for Marketplace.

KAI RYSSDAL: This just in from the Marketplace Desk of Yet Another Wall Street Settlement. Some of the big brokerage houses in New York have agreed to pay regulators a combined $13 million. Bear Stearns, Citigroup, Goldman Sachs, and Morgan Stanley are just a couple of the names you'll know. They were accused of manipulating auctions for corporate and municipal bonds. Marketplace's Amy Scott has the details.


AMY SCOTT: The settlement involves what are known as auction-rate bonds. These are bonds whose interest rates are reset from time to time through a blind auction process. Regulators say 15 brokerage houses abused or manipulated those auctions. Sometimes they allowed customers to submit or change a bid after the deadline. Others may have coached clients on what to bid.
ROBERT LAMB: This was a way to make possible that customers that you valued because of their ongoing business with that brokerage firm were taken care of.

That's New York University management professor Robert Lamb. Other times, regulators say brokers asked clients to bid in a specific auction to prevent it from failing for lack of interest. Joseph Fichera advised the SEC on the settlement. He declined to comment on the specifics. But he says in the late 1980s Lehman Brothers lost a pile of money when an auction failed to attract enough buyers.

JOSEPH FICHERA: They had to write off over $100 million as a result of the failures of that auction. So there was a strong incentive in this marketplace not to have a failed auction.

Some fear the relatively weak fines don't provide enough incentive to play clean. Marilyn Cohen wrote "The Bond Bible."

MARILYN COHEN: The restitution that the brokerage firms have to pay is a pittance. I mean, what a joke. That's coffee money for them.

An SEC official said these are "measured sanctions" because the firms cooperated. And the investigation's not over yet.

In New York, I'm Amy Scott for Marketplace.

About the author

Scott Tong is a correspondent for Marketplace’s sustainability desk, with a focus on energy, environment, resources, climate, supply chain and the global economy.

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