FINRA fined 10 firms a total of $43.5 million for their roles in allowing equity research analysts to solicit investment banking business in exchange for favorable research coverage in connection with the 2010 planned initial public offering (IPO) of Toys"R"Us.
FINRA disciplined the following 10 firms for these serious violations:
- Barclays Capital Inc. - Fined $5 Million
- Citigroup Global Markets, Inc. - Fined $5 Million
- Credit Suisse Securities (USA), LLC - Fined $5 Million
- Deutsche Bank Securities Inc. - Fined $4 Million
- Goldman, Sachs & Co. - Fined $5 Million
- JP Morgan Securities LLC - Fined $5 Million
- Merrill Lynch, Pierce, Fenner & Smith Inc. - Fined $4 Million
- Morgan Stanley & Co., LLC - Fined $4 Million
- Needham & Company LLC - Fined $2.5 Million
- Wells Fargo Securities, LLC - Fined $4 Million
According to the investigation, Toys"R"Us in April 2010 invited the 10 aforementioned firms to compete for a role in the toy giant's upcoming IPO. Investigators found that each of the 10 firms used equity research analysts as part of their solicitations for a role in the planned IPO.
The report states that Toys"R"Us and its sponsors asked the 10 firms to make separate presentations to Toys"R"Us management so that it could determine whether the firm analysts' views of key issues such as valuation factors were in alignment with the firms' investment bankers' positions.
Investigators found that during and following the May 5, 2010 presentations, each of the 10 firms either implicitly or explicitly offered favorable research coverage in exchange for a role in the IPO.
In other words, FINRA found that every one of the 10 firms offered to give the Toys"R"Us IPO and affiliated offerings a positive review if Toys"R"Us and its sponsors agreed to use the firm in the IPO.
The findings state that each of the firms except for Needham provided valuation information to Toys"R"Us, which explains Needham's lesser fine.
The findings also state that Needham along with the five firms fined $5 million—Barclays, Citigroup, Credit Suisse, Goldman Sachs and JP Morgan—had inadequate supervisory procedures in place related to investment banking pitches and the role of research analysts.
The investigations concludes with the finding that although Toys"R"Us and its sponsors did ultimately offer each of the 10 firms a role in the IPO, it eventually decided not to continue with the IPO.
If you have invested with any of the aforementioned Toys"R"Us IPO-involved firms or with any other broker, financial advisor or associated firm whose misleading, false or artificially positive (or negative) research coverage, unsuitable recommendations or pressure-inducing solicitations in connection with an IPO or other securities offering has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.
Press Release: FINRA Fines 10 Firms a Total of $43.5 Million for Allowing Equity Research Analysts to Solicit Investment Banking Business and for Offering Favorable Research Coverage in Connection With Toys"R"Us IPO (FINRA)