By Chelsey Dulaney
The Financial Industry Regulatory Authority said it fined 10
firms a total of $43.5 million for offering favorable coverage of
Toys "R" Us's failed 2010 initial public offering in order to
secure a spot as an underwriter on the offering.
The securities divisions at five of the banks-- Barclays PLC,
Citigroup Inc., Credit Suisse, Goldman Sachs Group Inc. and J.P.
Morgan Chase & Co.-- received a $5 million fine.
Deutsche Bank, Bank of America Corp.'s Merrill Lynch, Morgan
Stanley, Wells Fargo & Co. and Needham & Co. received
smaller penalties.
Finra said Toys "R" Us invited the 10 firms in April 2010 to
compete for a role in its planned IPO, and the company disclosed
plans that May to raise up to $800 million. Finra said the firms
used their equity analysts to help secure a role in the IPO,
offering favorable coverage.
Toys "R" Us asked the analysts to make presentations to
management in an effort to ensure that the analysts' views on
issues such as valuation factors aligned with the firms' investment
bankers, Finra said. Some of the analysts voiced a positive outlook
on Toys "R" Us and the IPO during their presentations, Finra
said.
Toys "R" Us offered the 10 firms roles in the IPO, but didn't
end up proceeding with the offering.
Finra also said Barclays, Citigroup, Credit Suisse, Goldman
Sachs, J.P. Morgan and Needham didn't have adequate procedures in
place for research analyst participation in investment banking
pitches.
J.P. Morgan and Wells Fargo declined to comment, while a
representative of Citigroup said the bank is pleased to put matter
behind it.
"Each of these firms used their analyst to solicit investment
banking business from Toys "R" Us and offered favorable research,"
said Susan Axelrod, executive vice president of regulatory
operations at Finra. " This settlement affirms our commitment to
policing the boundaries between research and investment banking to
ensure that research is not improperly influenced."
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
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