Ten of the world's largest banks have been fined $43.5 million for offering favorable research coverage in exchange for investment banking business from Toys"R"Us.
The Financial Industry Regulatory Authority announced the fine Thursday, saying that a total of 10 firms, including JP Morgan, Goldman Sachs, Barclays and Deutsche, allowed their equity research analysts to solicit investment banking business and offered favorable research coverage when planning the initial public offering of Toys"R"Us in 2010, according to the report.
"In April 2010, Toys"R"Us and its private equity owners (sponsors) invited these 10 firms to compete for a role in Toys"R"Us' planned IPO. FINRA found that each of the 10 firms used its equity research analyst as part of its solicitation for a role in the IPO," the report said.
Toys"R"Us offered each of the banks a role in the IPO, but eventually retracted the offer.
"FINRA's research analyst conflict of interest rules make clear that firms may not use research analysts or the promise of offering favorable research to win investment banking business," said Susan Axelrod, FINRA executive vice president of regulatory operations. "Each of these firms used their analyst to solicit investment banking business from Toys"R"Us and offered favorable research. This settlement affirms our commitment to policing the boundaries between research and investment banking to ensure that research is not improperly influenced."
The fines "highlight the importance of prohibiting the monetization of the reputation and work product of analysts," said Brad Bennet, FINRA's executive vice president and chief of enforcement.
None of the 10 banks admitted to the charges, nor did they deny them, FINRA said. The organization also added that six of the 10 firms - Barclays, Citigroup, Credit Suisse, Goldman Sachs, JP Morgan and Needham - had "inadequate supervisory procedures related to research analyst participation in investment banking pitches."
The banks and amount fined are as follows:
- Barclays Capital Inc. - $5 million
Citigroup Global Markets Inc. - $ 5million
Credit Suisse Securities (USA), LLC - $5 million
Goldman, Sachs & Co. - $5 million
JP Morgan Securities LLC - $5 million
Deutsche Bank Securities Inc. - $4 million
Merrill Lynch, Pierce, Fenner & Smith Inc. - $4 million
Morgan Stanley & Co., LLC - $4 million
Wells Fargo Securities, LLC - $4 million
Needham & Company LLC - $2.5 million
