WALL STREET FIRMS Probes turn up useful evidence

Documents obtained by state regulators will aid lawsuits against brokers.
LOS ANGELES TIMES
While investors won't get much money from regulators' $1.4 billion settlement with Wall Street firms, the evidence dug up by government investigators is expected to prompt a new wave of private lawsuits and arbitration claims.
Depositions and internal brokerage firm e-mails and other documents, obtained by regulators in New York and other states, could make it possible to bring cases that otherwise would be too expensive or difficult for investors to pursue, according to experts in corporate and securities law. The detailed evidence could help the lawsuits survive dismissal motions and make settlements easier to reach with the investment firms' defense teams, they said.
"That kind of stuff is sometimes very hard for private plaintiffs to get," said University of Texas law professor Henry Hu. "Here you may not have to pay for it -- it could be handed to you on a platter, courtesy of the New York taxpayers."
Settlements
State and federal officials announced on Friday the so-called global settlement with the Wall Street firms -- a series of tentative deals that must be approved by the Securities and Exchange Commission. The investment firms admitted no wrongdoing in settling the cases.
Only as finalized settlements are released in the coming weeks will the scope of the cases become public. Regulators, including SEC enforcement chief Stephen Cutler, said they will release detailed findings, which could be used to support claims filed by investors against the firms.
But observers said it was unclear whether private attorneys would get access to all the documents that regulators used to support their charges. Some of those documents touch on issues of immediate concern to investors who were burned during the market bubble of the late 1990s, such as e-mails in which brokerage analysts privately disparaged stocks that they were touting in their published reports.
"The SEC usually does not release documents it obtains," said Thomas Ajamie, a Houston attorney who represents investors in claims against their brokers. But he noted that the New York attorney general's office, which took a leading role in the case, "has already provided the public with much more information than the SEC ever has."
Criticism
Even before seeing the finalized settlements, some securities lawyers were passing harsh judgments. Joseph Cotchett, a prominent San Francisco Bay Area attorney, said the deals may serve as a "giant corporate shield" to protect officials at the investment firms from criminal liability.
"Those analysts, executives and supervisors created trillions of dollars in losses to the public. Police pensions, fire pensions were lost all across America, and they're walking out of this for an amount that is infinitesimal compared to the damage they have caused," Cotchett said.
As yet, regulators haven't devised a manageable plan to determine how much of the $1.4 billion investors will get, when they'll get it or how it may be divided. Of the settlement, $900 million represents fines, $450 million is earmarked for independent research and $85 million is for investor education.
One thing is certain, though: With stocks now worth trillions of dollars less than a few years ago, the settlement funds won't go far toward making investors whole.