Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, March 14, 2007

SEC Settles Fraudulent Research Case Against Banc of America Securities

The Securities and Exchange Commission announced today a settled enforcement action against Banc of America Securities LLC (BAS) for failing to safeguard its forthcoming research reports, including analyst upgrades and downgrades, and for issuing fraudulent research. As part of the settlement, BAS agreed to a censure, a cease-and-desist order, and payment of $26 million in disgorgement and penalties.
The Commission's Order finds that, from January 1999 through December 2001, BAS experienced a breakdown in its internal controls designed to detect and prevent the misuse of forthcoming research reports by the firm or its employees. BAS sales and trading employees learned of forthcoming research changes, including upgrades and downgrades, on multiple occasions during the period. At the same time, BAS did not provide clear or effective policies and procedures regarding the handling or control of such information. As a result, in at least two instances, BAS traded before research reports were issued. The Commission's Order also finds that BAS failed to address conflicts of interest that compromised the independence and integrity of its analysts. These conflicts resulted in the publication of materially false and misleading research reports on Intel Corporation, TelCom Semiconductor, Inc., and E-Stamp Corp.

In 2004, in connection with this investigation, the Commission censured BAS and ordered the firm to pay $10 million for failing to produce documents and engaging in dilatory tactics. Today's action ends the Commission's investigation

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