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Investors hard to woo back
By JEFF HARRINGTON, Times Staff Writer
Arthur Bruce, a former manufacturing equipment salesman, has been burned before by bad investment advice. Like the broker who talked him into buying 600 shares of Enron stock. And his last broker, who told him what a great deal Conseco stock was so he bought 100 shares for himself and 100 shares apiece for his four children. "That went down the old mustard chute," Bruce lamented. Conseco, the financial and insurance conglomerate, this week followed Enron's route into bankruptcy court. The 85-year-old retiree who lives in Seminole is understandably skeptical about Friday's landmark settlement in which the biggest brokerage firms pledged to use more independent research and to divorce themselves from conflicts of interest in recommending stocks. "I don't trust them any more now," Bruce said. "Let's face it. I was a salesman and as a peddler, you'd say anything to get an order, wouldn't you?" Like Bruce, other Tampa Bay area investors who have been shaken by revelations about deceptive Wall Street brokers, are hesitant to reinvest their faith, let alone their money. Michael Cook, a counselor at Hillsborough Community College who moved his money out of stocks just before the market downfall, said the latest changes may stem troubling brokerage practices. "But it'll be hard to stop it 100 percent," he said. Yet there are those, such as Virginia Walker of St. Petersburg, who still believe in their brokers. Walker, 56, who retired from a software sales management job in August, invests through a broker at Raymond James. "I trusted him and I still trust him," she said. Nevertheless, she's resisting that broker's suggestion to move funds from money market funds back into stocks. "It's going to take me a while to go back (into the market), not because of him but because I'm so concerned right now. . . . I'm still shell-shocked." The nation's biggest brokerage firms will pay $1.44-billion to resolve charges they gave biased stock ratings and pledged Friday to restructure the way they do business. But it is unclear how much the settlement, one of the largest ever won by regulators, will do to compensate investors for losses, punish individual executives and analysts, and bring closure to a year of market scandals. "Every investor knows that the market involves risk," New York Attorney General Eliot Spitzer said. "Nobody expects a guaranteed profit. But what every investor expects and deserves is honest investment advice -- advice and analysis that is untainted by conflicts of interest." The firms allegedly misled investors by inflating stock ratings to help their firms win investment banking business. The case drew widespread attention when authorities uncovered e-mails in which analysts privately derided stocks they were touting to the public and helped lead to the current crisis of confidence on Wall Street. The settlement negotiated by Spitzer's office, the Securities and Exchange Commission and other regulators calls for 10 firms, including Citigroup, Goldman Sachs and Credit Suisse First Boston, to pay millions in fines, sever the links between research and investment banking, and fund independent stock research for investors that would complement their own analysts' work. In agreeing to the fines, the firms would neither admit nor deny charges that they had misled investors. Citigroup's Salomon Smith Barney brokerage unit will pay the heaviest fine: $300-million. But Citigroup CEO Sanford Weill won a guarantee he would not be prosecuted. Credit Suisse will pay $150-million. Goldman Sachs, J.P. Morgan Chase, Bear Stearns, Morgan Stanley, Lehman Brothers, Deutsche Bank and UBS Warburg will each pay $50-million, according to a joint statement by regulators. In May, Merrill Lynch, the nation's largest brokerage firm, agreed to a settlement that included a $100-million fine and the separation of its analysts from investment banking. In addition to the $900-million in fines, the firms also will pay $450-million over five years for independent research and $85-million for a nationwide investor education program. The settlement excludes two smaller firms, US Bancorp Piper Jaffray and Thomas Weisel Associates, that had raised objections to the settlement this week. Negotiations are continuing and those firms are expected to pay $20-million each, said Spitzer spokesman Darren Dopp. Count Ebe Bower, vice president of tourism for the Clearwater Regional Chamber, among those skeptical that the changes will fix the system. "This is a step in the right direction but it could very well just be really good smoke and mirrors," Bower said. "They have to show me that it works first. This is too little, way late." She said she was badly burned by stockbrokers who seemed to make more money than she did by shifting her money around. Now she invests only through a financial planner in mutual funds, no individual stocks. Bruce, the retired salesman in Seminole, said he is ambivalent about how he will use brokers in the future. "You need them for information. That's what they're great about," he said. "But you have to analyze it on your own two feet. You are your own master. You do what you think is best for you." -- Information from Times wires was used in the report.
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From the Times Business report
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