What is a Global Analyst Research Settlement?
The Global Analyst Research Settlement refers to a fund in the United States in response to the 2003 mutual fund scandal. During the scandal, the authorities discovered that many large US investment banks had aided and abetted instances of investor fraud. The fund aimed to educate retail investors and also consumers about finance and investing.
The Global Analyst Research Settlement was a 2003 enforcement agreement between the SEC, NASD, NYSE and ten of America’s largest investment firms. SEC stands for the US Securities and Exchange Commission, NASD is the Financial Industry Regulatory Authority, and NYSE stands for the New York Stock Exchange.
The parties reached the enforcement agreement to address problems of conflict of interest within investment firms. Financial analyst departments of those firms had made recommendations. Subsequently, the stakeholders got together and thrashed out an agreement.
According to BusinessDictionary.com, the Global Research Analyst Settlement is:
“A fund created in response to the 2003 mutual fund scandal, in which a large number of major US investment banks were found to have aided and abetted instances of investor fraud.”
Global Analyst Research Settlement – Background
A court had judged that there had been a conflict of interest between the investment banking and analysis departments of America’s ten largest investment firms.
According to the judgment, investment bankers had influenced investment firms’ research analysts inappropriately. The investment bankers had, in fact, been overzealous in their quest for lucrative fees.
For example, Salomon Smith Barney and CSFB had allegedly engaged in inappropriate spinning of ‘hot’ IPOs. An IPO is an Initial Public Offering.
The parties had also issued fraudulent research reports. This was in violation of several sections of the 1934 Securities Exchange Act.
UBS Warburg and Piper Jaffray had also acted inappropriately. They had allegedly not disclosed that they had received payments for investment research. Their actions or lack of actions were in violation of the 1933 Securities Act.
In 2004, the SEC announced that firms would have to comply with several undertakings. For example, regarding reporting lines, the SEC said the following:
“Research and Investment Banking will be separate units with entirely separate reporting lines within the firm -i.e., Research will not report directly or indirectly to or through Investment Banking.”