Seven Brokers Settle With SEC for $3.65M

Seven broker-dealers agreed to pay a total of $3.65 million to settle charges that they failed to disclose receiving payments for providing research coverage of certain public companies, U.S. securities regulators said on Wednesday.

The seven — Needham & Co. (search) ; Janney Montgomery Scott LLC (search); Morgan Keegan & Co. (search) ; Prudential Equity Group (search); Adams Harkness Inc. (search) ; Friedman, Billings, Ramsey & Co. (search) ; and SG Cowen & Co. (search) — settled with the Securities and Exchange Commission without admitting or denying the charges.

Between 1999 and 2002, the seven accepted payments from securities firms underwriting initial and follow-on stock offerings in exchange for publishing research reports on the stocks, according to the SEC (search). The underwriters were not named.

The broker-dealers failed to disclose that they had been paid or reveal the amount of the payments — referred to as "special research checks" or "research fees" in some internal company documents — a violation of securities regulations.

Prudential, for example, received three payments ranging from $50,000 to $200,000 for issuing research reports in 1999 and 2000. Needham received four payments ranging from $75,000 to $100,000 for providing coverage between 1999 and 2001.

In another instance, the SEC found that Philadelphia-based Janney published reports in May 2000 covering Whitehall Jewellers Inc., which sold shares through a secondary offering in February that year. Janney received $23,800 from the lead underwriter, which the SEC did not identify in an enforcement order.

Underwriters, the SEC said, also convinced the seven broker-dealers to provide research coverage for 3DO Co. Ancor Communications, Arena Pharmaceuticals , At Home Corp., Crossroads Systems, Diamond Technology Partners, Endwave Corp., Flextronics International , Gasonics International Corp., Kulicke & Soffa Industries, THQ Inc. and Therapeutic Systems Inc.

The SEC said it also fined four of these firms — Adams Harkness, Janney, Morgan Keegan and Needham — for failing to preserve certain business-related e-mail between July 1999 and June 2001. The fines are included in the $3.65 million figure.

The four consented to cease-and-desist orders without admitting or denying wrongdoing.

Morgan Keegan & Co. is a unit of Regions Financial Corp. , and SG Cowen & Co. is a unit of French bank Societe Generale. Prudential Equity is the trading and research arm of insurer Prudential Financial Inc.