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STATE OF
OFFICE OF SECURITIES
121 STATE HOUSE STATION
AUGUSTA, ME 04333
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IN THE MATTER OF: ) ) CONSENT ORDER UBS Warburg LLC ) CRD # 7654 ) UBS PaineWebber Inc. 1285 Avenue of the CRD # 8174 Respondents |
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CONSENT
ORDER No. 03-109 |
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WHEREAS, UBS PaineWebber Inc. (“UBS
PaineWebber”) is a broker-dealer licensed in the State of
WHEREAS, UBS Warburg LLC (“UBS Warburg”) is a broker-dealer licensed in
the State of
WHEREAS, for
purposes of this Order, PaineWebber, UBS PaineWebber and UBS Warburg will be
collectively referred to as UBS or the Firm, except in circumstances where
PaineWebber, UBS PaineWebber or UBS Warburg are specifically referenced;
WHEREAS, coordinated investigations
into the Firm’s activities in connection with certain of its equity research
practices during the period of approximately 1999 through 2001 have been
conducted by a multi-state task force and a joint task force of the U.S.
Securities and Exchange Commission (“SEC”), the New York Stock Exchange
(“Exchange”), and the National Association of Securities Dealers (“NASD”)
(collectively, the “regulators”);
WHEREAS, the Firm has advised regulators of its agreement to
resolve the issues raised in the investigations relating to its research
practices;
WHEREAS, the Firm agrees to implement
certain changes with respect to its research practices to achieve compliance
with all regulations and any undertakings set forth or incorporated herein
governing research analysts, and to make certain payments; and
WHEREAS, the Firm elects to
permanently waive any right to a hearing and appeal under 32 M.R.S.A. §§
10708-10709 with respect to this Consent Order (the “Order”);
NOW, THEREFORE, the Securities
Administrator of the State of Maine Office of Securities, as administrator of
the Revised Maine Securities Act, 32 M.R.S.A. §§ 10101-10713, hereby enters
this Order:
I.
The Firm admits the jurisdiction of the Office of Securities, neither
admits nor denies the Findings of Fact and Conclusions of Law contained in this
Order, and consents to the entry of this Order by the Securities Administrator.
FINDINGS OF FACT
1)
UBS Warburg
became a member organization of the Exchange on
2)
PaineWebber Inc.
(“PaineWebber”), founded in 1879, was a full-service securities firm located in
3)
On
4)
UBS AG has
offices in over 50 countries, employing approximately 69,500 people, 35,000 of whom work for UBS PaineWebber or UBS Warburg. UBS Warburg has 90 stock exchange memberships
in 30 countries and the firm’s 500 equity research analysts cover about 3,300
companies world-wide.
5)
UBS Warburg and
UBS PaineWebber are registered with the Exchange, SEC, NASD
and with all 50 states, the
B. Overview
1)
This action
concerns the research and investment banking activities at UBS Warburg during
the period
2)
During the
relevant period, as set forth below, the Firm sought and did investment banking
business with many companies covered by the Firm's Research Department. Research analysts were encouraged to
participate in investment banking activities and that was a factor considered
in the analysts’ compensation. In
addition, the decision to initiate and maintain research coverage of certain
companies was in some cases coordinated with the Investment Banking Department
and influenced by investment banking interests.
3)
As a result of
the foregoing, as set forth below, certain research analysts at the Firm were
subject to investment banking influences and conflicts of interest between
supporting the investment banking business at the Firm and publishing objective
research.
4)
As set forth
below, the Firm had knowledge of these investment banking influences and
conflicts of interest, yet failed to establish and maintain adequate policies,
systems and procedures with respect to research analysts that were reasonably
designed to detect and prevent those influences or manage those conflicts.
C. The Role
of the Research Analyst
1)
Research analysts
were responsible for providing analyses of the financial outlook of particular
companies in the context of the business sectors in which those companies
operate and the securities markets as a whole.
2)
The Firm
publishes research on publicly traded companies based upon analysts’ examining,
among other things, financial information contained in public filings,
questioning company management, investigating customer and supplier
relationships, evaluating companies’ business plans and the products or
services offered, building financial models, and analyzing competitive
trends.
3)
After
synthesizing and analyzing this information, analysts produced research in the
form of full reports and more abbreviated formats that typically contained a
rating, a price target, and a summary and analysis of the factors that
generated the rating and/or price target.
The Firm then distributed its analysts’ research reports to the Firm’s
institutional clients, to the Firm’s sales force and to retail clients upon
request. Research reports were also made
available to third party vendors, such as Bloomberg and First Call, who then
made the reports available to subscribers to those vendors. In addition, the rating, but not the analysis
contained in the research report, was published on Internet websites such as
Multex, for viewing by the investing public.
Similarly, UBS Warburg posted on its website (and provided in hard copy
if requested), monthly summaries concerning the companies covered by its
research analysts, the ratings issued, and any ratings changes from the previous
month. These summaries did not include
any of the analyses contained in the actual research reports.
4)
Analysts were
required according to UBS Warburg policy to submit any proposed rating upgrades
or downgrades and initiations of coverage to an Investment Review Committee
(“IRC”) that consisted of compliance, institutional sales, equity capital
markets and research department personnel.
The IRC reviewed analysts’ reports and approved rating and target
changes as well as initiations of coverage.
5)
Nevertheless,
analysts were sometimes able to upgrade or downgrade ratings by requesting and
receiving approval of one of several designated members of Research Management,
who were also members of the IRC, rather than the full IRC, whenever that
change in rating was based upon breaking news.
Because Firm analysts sometimes changed their ratings based upon
breaking news, upgrades or downgrades were authorized without the approval of
the full IRC in nearly one-third of the instances in which ratings were changed
during the Relevant Period.
6)
Analysts also
made themselves available to the Firm’s institutional and retail sales force to
answer questions about the sector and the covered companies. In addition, analysts provided periodic
research updates to the Firm’s sales force through “morning calls” or “morning
notes,” which are daily pre-market opening discussions of the market sectors
and specific covered companies. Analysts
also provided research updates through “blast” e-mails and voice messages,
which typically provide a rating and a more abbreviated analysis than what is
contained in a research report.
7)
During the
Relevant Period, analysts were expected to make independent determinations
regarding coverage, stock price targets and ratings whether to buy, sell or
hold certain stocks, without consideration of their research reports’ potential
impact upon Firm investment banking business or the business of Firm investment
banking clients.
8)
In the 1990’s the
importance of research issued by analysts increased as a result of the dramatic
growth in the number of individual investors and the availability of online
trading. Research coverage became a
marketing tool, and issuers sometimes chose an investment bank based upon the
expectation that a certain analyst would cover the company’s stock
favorably.
9)
As the
performance and coverage of research analysts became increasingly integral to
the awarding of investment banking business, the Firm encouraged its research
analysts to become more involved in investment banking activities, including
marketing securities issued by investment banking clients (primarily to the
Firm’s institutional clients) and soliciting investment banking business.
1)
The Investment
Banking Division at the Firm advised corporate clients and helped them execute
various financial transactions, including the issuance of stock and other
securities. The Firm frequently served
as one of the underwriters in initial public offerings (“IPOs”) – the first
public issuance of stock of a company that has not previously been traded – and
follow-on offerings of securities.
2)
During the
relevant period, investment banking was an important source of revenues and
profits for UBS Warburg. UBS Warburg’s
investment banking department reported global revenues of $1.369 billion in
1999, $1.602 billion in 2000 and $1.369 billion in 2001, representing nearly
15% of UBS Warburg’s global revenues during that time period.
3)
In addition to
performing research functions, some of the Firm’s research analysts identified
companies as prospects for investment banking services, participated in
“pitches” of the Firm’s investment banking services to companies, and
participated in “roadshows” and other activities in connection with the
marketing of underwriting transactions.
At times, Firm research analysts were involved in meetings between
companies, prior to their IPO’s, and some of the Firm’s institutional customers
who had expressed an interest in purchasing shares in those IPOs. These meetings would take place in various
cities all over the country in order to accommodate the institutional customers
and were commonly known in the industry as “analyst roadshows.”
4)
During these
roadshows, the analyst would discuss the issuer with the institutional
customers and would frequently arrange “one on one” meetings between company
executives and managers of institutional clients who had expressed interest in
investing. These roadshows were
considered to be a service provided by the Firm to both its institutional
clients as well as its investment banking clients.
5)
Research analysts
also participated in commitment committee and due diligence activities in
connection with underwriting activities and assisted the Investment Banking
Department in providing merger and acquisition and other advisory services to
companies.
6)
The interactions
between investment bankers and certain research analysts during the Relevant
Period, at times impacted the independence of those analysts’ as they became increasingly
involved in the Firm’s efforts to secure investment banking business. As a result, an environment was created that
may have led certain analysts to believe that they were expected to initiate and
maintain positive research about Firm clients.
E.
Participation in
Investment Banking Activities Was a Factor
in
Evaluating and Compensating Research Analysts
1)
The compensation
system at the Firm provided an incentive for research analysts to participate
in investment activities and to assist in generating investment banking
business for the Firm.
2)
The performance
of research analysts was evaluated by Research Management through an annual
review process and analysts’ bonuses were determined through this process,
unless an analyst had a guaranteed bonus set by contract in advance. The guaranteed bonuses for the Firm’s top
analysts were frequently in the millions of dollars while the base salary was
typically in the $125,000 to $150,000 range.
3)
In addition to
these guaranteed bonuses, six PaineWebber analysts were explicitly guaranteed
“investment banking bonuses”, meaning that those analysts were entitled to some
portion of certain investment banking fees earned by PaineWebber.
4)
For example, two
PaineWebber analysts were promised compensation equal to 15% of the
underwriting management fees earned in their respective sectors. In addition to the bonuses paid to those
analysts pursuant to PaineWebber’s annual review process, those two analysts
received an additional $125,000 and $135,000, respectively, for the year 2000,
because of the investment banking fees earned by PaineWebber in their
respective sectors.
5)
When UBS Warburg
acquired the research and investment banking operations of PaineWebber in
November, 2000, the Firm removed the direct link between investment banking
revenues and analyst compensation.
6)
The UBS annual
evaluation process included an evaluation of each analyst’s contribution to the
Firm’s investment banking business as a factor in determining bonus
compensation.
7)
Each year, prior
to bonuses being paid, UBS conducted a comprehensive evaluation process that
rated each analyst’s performance and assigned analysts rankings in one of four
quartiles. As part of that process,
analysts submitted self-evaluations, and other UBS employees with whom the
analyst had had significant contact were also asked to submit evaluations,
including investment bankers.
8)
In describing the
analysts’ performance, the UBS bankers frequently included comments relating to
the analyst’s abilities to attract and/or maintain investment banking clients.
9)
For example, an
investment banker at UBS Warburg evaluated one analyst as “the best business
builder in research I have ever known.”
10)
Similarly,
Research Management considered investment banking contributions as a component
of analysts’ performance evaluations.
The Head of UBS Warburg’s Research Division evaluated that same analyst
as the “most prolific analyst at the firm when it comes to generating
investment banking revenues” and that he “manages the tightest coordination
between research and [the Corporate Finance Division] of any sector.” This evaluation was included in the section
of the performance review entitled “Accomplishment/Strengths.”
11)
Furthermore, the
Head of UBS Warburg’s Research Division, who was ultimately responsible for
evaluating analysts and determining the exact amount of their bonus
compensation, referenced analysts’ contributions to investment banking business
as one factor in the evaluation of their performance.
12)
The Firm also
specifically requested that analysts, in writing their own self-evaluations,
include, among other criteria, an assessment of their contribution to the
Firm’s Investment Banking Department.
This led to a perception among analysts that contribution to investment
banking was a factor in compensation.
13)
In response to
this request, one analyst described his own performance for the Firm by
highlighting his involvement with several investment banking deals done by the
Firm during the previous year. The
analyst then boasted that he was responsible for generating $15 million in
investment banking revenue for the Firm during that time.
1)
In general, the
Firm determined whether to initiate and maintain research coverage based upon
investor interest in a company or based upon investment banking considerations,
such as attracting companies to generate investment banking business or
maintaining a positive relationship with existing investment banking
clients.
2)
As a matter of
practice, the Firm initiated coverage on companies that engaged the Firm in an
investment banking transaction and maintained coverage for a period of time
beyond the transaction.
3)
Research analysts
were aware that, in certain circumstances, their positive and continued
coverage of particular companies was an important factor for the generation of
investment banking business. Thus, some
research analysts and investment bankers coordinated the initiation and maintenance
of research coverage based upon, among other things, investment banking
considerations.
4)
For example,
analysts were required to seek authorization from Research Management prior to
dropping coverage of a company, unless the reason for dropping coverage was due
the departure of the covering analyst.
However, when the company involved was an investment banking client, the
analyst was also expected to consult with the investment banking personnel
responsible to that client.
5)
Additionally,
according to an e-mail by UBS Warburg Head of Global Technology Investment
Banking, it was an implicit condition in the UBS Warburg investment banking
agreements that UBS Warburg would continue to provide research coverage of its
clients for a period of time following a transaction. Such implied promises to investment banking
clients impacted the Research Department’s authority to make its own
independent determinations concerning the continuation of coverage.
6)
When a UBS
Warburg analyst informed the Head of the Research Department that he intended
to drop coverage of a particular company, he was asked whether there was any
“banking relationship” and was told to “check with” the banker who worked with
that company.
7)
Although coverage
of the company was dropped in that instance, the lead banker of the technology
group at UBS Warburg reminded the research analyst and Research Management of
the implicit promise made during pitch meetings that coverage would be
maintained for a significant period of time:
“The problem is that many companies . . . in asking for credentials for
a pitch will ask directly if we are meeting our research obligations to the
companies we bank. They generally expect
an IPO fee to justify coverage for three years . . .”
8)
In another
instance, when a UBS Warburg research analyst informed his banking counterpart,
that he intended to drop coverage of four biotechnology companies, the banker
forwarded that message to a member of Investment Banking Management who sent an
e-mail to the analyst stating that he wished “to have the opportunity to
discuss future potential revenue opportunities from these clients” before
coverage was dropped.
9)
The Investment
Banking Department also sometimes had an impact upon determinations made by
analysts regarding the initiation of coverage.
When investment bankers became aware of opportunities to cultivate
investment banking business, they sometimes suggested to the analyst in that
sector that coverage should be initiated.
10)
For example, a
Firm investment banker sent an e-mail to a Firm research analyst indicating
that a company with whom he had discussed investment banking business had asked
“if there was an interest by UBS Warburg to cover them from a research stand
point.” The banker went on to say that
he believed that “the timing is good” for initiation of research coverage of
the company and offered to set up a meeting between the company and the
analyst.
11)
Similarly, a Firm
analyst informed his banking counterparts that they should wait to call a
company to discuss a potential investment banking deal until “after I pick up
coverage.”
1)
During the
relevant period, research coverage was an important factor considered by
companies in selecting a firm for an investment banking transaction.
2)
Certain analysts
understood that the issuance of positive research about an issuer was a
pre-condition to the Firm’s obtaining the issuer’s banking business.
3)
In competing for
investment banking business from prospective issuers, the Firm typically sent
investment bankers to meet with company management in order to persuade the
company to select the Firm as one of the underwriters in a contemplated
transaction. Research analysts often
accompanied bankers on these “pitch” meetings.
At these meetings, Firm investment bankers would present their level of
expertise in the company’s sector and discuss their previous experience with
other companies, as well as their view of the company’s merits and likelihood
of success.
4)
In some
instances, the research analyst’s coverage and impact on the market place
concerning companies under coverage was a component of the pitch presented by
the Firm. As a result of these
presentations, certain issuers selected an investment bank because of the
reputation of the analyst that would cover the company’s stock and the issuer’s
belief that the coverage would be positive.
5)
Furthermore,
certain research analysts who covered the company’s sector often worked with
investment bankers to prepare the Firm’s pitch presentation and attended the
pitch meeting.
6)
In preparation
for each presentation, the investment bankers, sometimes with an analyst’s
input, prepared a “pitch book” that was distributed at the meeting and
contained a summary of the Firm’s presentation.
7)
Some pitch books
contained information relating to the company, its competition, the sector in
which it operated and the nature of the services the Firm could provide to the
company and its shareholders after the completion of a potential offering. Additionally, Firm pitch books sometimes
contained implicit representations that the Firm would continue to provide
service to the issuer after the offering by providing research coverage about
the company.
8)
Some pitch books
contained information indicating that a specific analyst would cover the
company and included data demonstrating how that analyst’s positive comments
about other companies in the sector had had a direct positive impact upon the
stock prices of those companies.
9)
For example, the
pitch book presented to JDS Uniphase by PaineWebber, discussed the impact that
PaineWebber research had on covered stocks by including a graphic depicting the
performance of stocks on the Firm’s “Buy List” as opposed to stocks on the
Firm’s “Attractive List” and “Neutral List.”
At the top of the graphic, PaineWebber quoted a report from Reuters
which stated, “Shares of semiconductor companies specializing in chips for the
communications market rose on Thursday after PaineWebber published a report citing
the sector’s growth prospects.”
10)
Similarly, in a
pitch book presented to Avant Immunotherapeutics, Inc., PaineWebber presented a
slide entitled “Demonstrated Strength in Equity Trading and Research.” One of the sub-topics on the slide stated,
“Buy and attractive recommendations have outperformed the S&P 500 by 84
percentage points for the period 1/90 through 12/99” while “Sell and
unattractive ratings have underperformed the S&P 500 by 361 percentage
points for the period 1/90 through 12/99.”
11)
Because analysts
often participated in the Firm’s efforts to win investment banking business,
analysts were sometimes subjected to competing pressures after a stock became
publicly traded. The type of information
contained in the pitch books, such as the examples above, implied to issuers
that the Firm would provide positive research coverage if selected for an
investment banking transaction, and that such coverage could result in rising
stock prices for those companies.
H. Research
Analysts Rarely Issued Neutral or Negative Ratings
1)
During the
relevant period, PaineWebber’s rating system allowed research analysts to
assign one of four ratings to a stock:
“Buy”, defined as total return expected to exceed that of the S&P
500 by 20 percentage points or more over the next 12 months; “Attractive”, 12
month total return potential that is 10-20 percentage points greater than the
market’s; “Neutral”, 12 month total return potential within 10 percentage
points of the market’s; “Unattractive”, expected to underperform the market by
more than 10 percentage points on a total return basis over the next 12
months.
2)
During the
relevant period, UBS Warburg’s rating system differed slightly from
PaineWebber’s and allowed research analysts to assign one of five ratings to a
stock: “Strong Buy”, defined as greater
than 20% excess return potential; “Buy”, positive excess return potential;
“Hold”, low excess return potential; “Reduce”, negative excess return
potential; “Sell”, greater than 20% negative excess return potential. All of these ratings related to a 12 month
time horizon.
3)
During the
relevant period, the level of the price target and the strength of the
recommendation placed on a stock by covering analysts sometimes had a
significant impact on the stock price.
Investment bankers and issuers, being fully aware of the potential
impact of analysts’ recommendations, were motivated to seek research coverage
containing positive recommendations.
4)
In fact, certain
analysts considered the investment banking implications for the Firm when
contemplating issuing even a neutral rating about an investment banking
client. For example, a member of Equity
Sales Management, sent an e-mail to one of UBS
Warburg’s telecom analysts stating “The salesforce is extremely frustrated with
your research, price targets, ratings . . . . They feel that you’re being
somewhat flippant and not taking responsibility for your recommendations and
for having lost hundreds of millions of dollars for people.” The analyst responded that he would never
utilize a Hold rating on a stock unless one of two conditions occurred: “1) if I believe the company is about to go
bankrupt; 2) if there is no investment banking business to be had there.”
5)
Notwithstanding
that PaineWebber had four available ratings and UBS Warburg had five, the
Firm’s research analysts rarely issued ratings other than “Strong Buy” and
“Buy” on the stocks of investment banking clients. Out of several thousand companies covered by
UBS Warburg during the relevant period, UBS Warburg issued only seven “Hold”
ratings and two “Sell” ratings on companies with which it had an investment
banking relationship.
6)
Similarly, from
I. In Certain Instances, the Firm Published
Exaggerated or Unwarranted Research
1)
On several
occasions, the conflicts of interest discussed above resulted in analysts
publishing ratings and/or recommendations that were exaggerated or unwarranted,
and/or contained opinions for which there was no reasonable basis. The following are examples of how these
conflicts affected the research:
2)
In April of 1998,
UBS Warburg served as the lead manager on an IPO for Triangle Pharmaceuticals
(“Triangle”) and received $1.8 million in investment banking fees.
3)
Notwithstanding a
market capitalization value of approximately $352,000,000, in November of 1999,
Triangle had yet to earn any revenue.
Rather, investor optimism for the stock was based upon the anticipated
approval by the Food and Drug Administration (“FDA”) of several new drugs,
including its “lead HIV drug”, Coactinon.
4)
In a research
report issued on
5)
On
6)
On that same day,
the analyst published a new research report in which she relayed the news to
investors but maintained her “Buy” rating, based in part, according to the
report, upon the analyst’s belief that a different drug in development by
Triangle was the company’s “most important near-term opportunity.”
7)
The analyst spoke
to the UBS Warburg sales force before the market opened following Triangle’s
announcement of the FDA’s decision and made a statement in form or in substance
that the FDA’s action had been an anticipated possibility notwithstanding the
analyst’s “Buy” rating on the stock.
8)
Following that
call, a member of UBS Warburg’s Equity Trading Management contacted the analyst
by e-mail and expressed disappointment that the analyst anticipated that the
FDA might take this action but had failed to adequately emphasize that
possibility to the sales force.
9)
The analyst
responded that her failure to emphasize negative information regarding Triangle
was, at least partially, a result of the analyst’s allegiance to the investment
banking client: “Triangle is a very
important client of [the firm]. We could
not go out with a big research call trashing their lead product, although we had
a feeling the FDA might balk. Had we
been right or wrong, it would have been a disaster. I just wanted the salesforce to know we were
not surprised, and that where appropriate we had had some conversations with
the buyside. Sorry this was not conveyed.”
10)
Similarly, in
September 1999, UBS Warburg acted as a co-lead underwriter of Interspeed’s IPO
and received approximately $700,000 in investment banking fees as a
result.
11)
In October 1999,
the analyst initiated coverage on Interspeed with a “Buy” rating and a $15
price target and maintained that position for several months. On
12)
That same day,
the analyst issued a research report stating the Interspeed had fallen
“dramatically short on the top line” in the prior quarter “due to various
consumer financing and delivery issues.”
Additionally, the analyst issued the “Buy” rating in spite of the fact
that the stock price had risen above the analyst’s price target.
13)
Two days later,
on
14)
Approximately 15
minutes later, the recipient of that e-mail replied, asking “so why is ispd
[stock symbol for Interspeed] a short?”
The analyst replied, “Just lumpy revenue, some stuffing of channel,
creative accounting.”
15)
The analyst’s
reference to “customer financing and delivery issues” in his January 3rd
report should have more fully described his concern that Interspeed was suffering
from lumpy revenue or channel stuffing.
16)
A week after
that, on
17)
On
18)
On
19)
On
20)
On
J. UBS Warburg Received and Made Payments for
Research
1)
UBS Warburg
received payments from the lead manager of offerings in which UBS Warburg did
not participate for the issuance of research during the relevant time period.
2)
During the
relevant period, UBS Warburg received a payment of $100,000 from an outside
firm in connection with the offering of Flextronics International, Ltd. The cover letter enclosing the check
indicated that the check was a “special research check.” However, UBS Warburg failed to disclose in
its research reports concerning Flextronics that it had
received the payment, nor did it disclose the source or amount of the
payment.
3)
During the
relevant period, UBS Warburg also received a payment from an outside firm in
the amount of approximately $113,000 in connection with the offering of Atmel,
Inc. The cover letter enclosing the
check stated that the check represented “guaranteed economics for
research.” However, UBS Warburg failed
to disclose in its research reports concerning Atmel that it had
received the payment, nor did it disclose the source or amount of the
payment.
4)
During the
relevant period, UBS Warburg also paid a “research fee” of $150,000 at the
direction of the issuer, to two broker-dealers in conjunction with the
underwriting transaction of Netopia, Inc. in which UBS Warburg was the
lead-manager. However, UBS Warburg did
not take steps to ensure that this broker-dealer disclosed in its research
reports that it had been paid to issue research. Further UBS Warburg did not disclose or cause
to be disclosed the details of these payments.
5)
During the
relevant period, UBS Warburg also made several payments totaling approximately
$283,000, at the direction of the issuer, for “research” to broker-dealers in
conjunction with an underwriting transaction of Espeed, Inc., in which UBS
Warburg was the lead manager. However,
UBS Warburg did not take steps to ensure that this broker-dealer disclosed in
its research reports that it had been paid to issue research. Further UBS Warburg did not disclose or cause
to be disclosed the details of these payments.
1)
While one of the
roles of research analysts was to produce objective research, the Firm also
encouraged them to participate in investment banking activities. As a result of the foregoing, these analysts
were subject to investment banking influences and conflicts of interest between
supporting the Firm’s investment banking business and publishing objective
research.
2)
The Firm had knowledge of these investment
banking influences and conflicts of interest yet failed to manage them
adequately to protect the objectivity of its published research.
3)
The Firm failed to establish and maintain adequate policies, systems
and procedures reasonably designed to ensure the objectivity of its published
research. Although the Firm had some
policies governing research analyst activities during the relevant period,
these policies were not adequate to fully address the conflicts of interest
that existed.
II.
CONCLUSIONS OF LAW
1) The Office of Securities has
jurisdiction over this matter pursuant to the Revised Maine Securities Act, 32
M.R.S.A. §§ 10101-10713.
2) The Securities Administrator
finds that the Firm violated 32 M.R.S.A. § 10313(1)(G) by:
i)
engaging in the
acts and practices that created or maintained inappropriate influence by the
Investment Banking Department over research analysts, therefore imposing
conflicts of interest on its research analysts, and failing to manage these
conflicts in an adequate or appropriate manner;
ii) issuing research reports that were affected by the
conflicts of interest imposed on its research analysts as described above;
iii) making payments for research to other broker-dealers
not involved in underwriting transactions when the Firm knew that these
payments were made, at least in part, for research coverage, and by failing to
disclose or cause to be disclosed in offering documents or elsewhere the fact
of such payments; and
iv) receiving payments in conjunction with underwriting
transactions from outside entities for research issued without disclosing
receipt of those payments to the public as required by Section 17(b) of the
Securities Act of 1933, as amended.
3) The Firm violated 32
M.R.S.A. § 10313(1)(J) by failing to establish and maintain adequate policies,
systems and procedures for supervision and control of the Research and
Investment Banking Departments reasonably designed to detect and prevent the
foregoing investment banking influences and manage the conflicts of interest to
assure compliance with applicable securities laws and regulations.
4) The Securities Administrator
finds the following relief appropriate and in the public interest.
On the
basis of the Findings of Fact, Conclusions of Law, and UBS Warburg’s and UBS
PaineWebber’s consent to the entry of this Order, for the sole purpose of
settling this matter, prior to a hearing and without admitting or denying any
of the Findings of Fact or Conclusions of Law,
IT IS HEREBY ORDERED:
1) This
Order concludes the investigation by the Office of Securities and any other
action that the Office of Securities could commence
under applicable
2) The
Firm will CEASE AND DESIST from violating sections 10313(1)(G) and 10313(1)(J)
of the Revised Maine Securities Act, 32 M.R.S.A. §§ 10101-10713, in connection
with the research practices referenced in this Order and will comply with the undertakings of Addendum A,
incorporated herein by reference.
3) As a result of the Findings
of Fact and Conclusions of Law contained in this Order, the Firm shall pay a
total amount of $80,000,000.00. This
total amount shall be paid as specified in the SEC Final Judgment as follows:
a) $25,000,000 to the states
(50 states, plus the
b) $25,000,000 as disgorgement
of commissions, fees and other monies as
specified in the SEC Final Judgment;
c) $25,000,000, to be used for the procurement of
independent research, as described in the SEC Final Judgment;
d) $5,000,000, to be used for investor education, as
described in the SEC Final Judgment.
4) If payment is not made by the Firm or if the Firm
defaults in any of its obligations set forth in this Order, the Office of
Securities may vacate this Order, at its sole discretion, upon 10 days notice
to the Firm and without opportunity for administrative hearing.
5) The Firm agrees that it shall not seek or accept,
directly or indirectly, reimbursement or indemnification, including but not
limited to payment made pursuant to any insurance policy, with regard to all
penalty amounts that the Firm shall pay pursuant to this Order or section II of
the SEC Final Judgment, regardless of whether such penalty amounts or any part
thereof are added to the Distribution Fund Account referred to in the SEC Final
Judgment or otherwise used for the benefit of investors. The Firm further agrees that it shall not
claim, assert, or apply for a tax deduction or tax credit with regard to any
state, federal or local tax for any penalty amounts that the Firm shall pay
pursuant to this Order or section II of the SEC Final Judgment, regardless of
whether such penalty amounts or any part thereof are added to the Distribution
Fund Account referred to in the SEC Final Judgment or otherwise used for the
benefit of investors. The Firm
understands and acknowledges that these provisions are not intended to imply
that the Office of Securities would agree that any other amounts the Firm shall
pay pursuant to the SEC Final Judgment may be reimbursed or indemnified
(whether pursuant to an insurance policy or otherwise) under applicable law or
may be the basis for any tax deduction or tax credit with regard to any state,
federal or local tax.
6) This Order is not intended by the Office of Securities
to subject any Covered Person to any disqualifications under the laws of any
state, the District of Columbia or Puerto Rico (collectively, “State”),
including, without limitation, any disqualifications from relying upon the
State registration exemptions or State safe harbor provisions. "Covered Person" means the Firm, or
any of its officers, directors, affiliates, current or former employees, or
other persons that would otherwise be disqualified as a result of the Orders
(as defined below).
7) The SEC Final Judgment, the NYSE Stipulation and
Consent, the NASD Letter of Acceptance, Waiver and Consent, this Order and the
order of any other State in related proceedings against the Firm (collectively,
the “Orders”) shall not disqualify any Covered Person from any business that
they otherwise are qualified, licensed or permitted to perform under the
applicable law of Maine and any disqualifications from relying upon this
state’s registration exemptions or safe harbor provisions that arise from the
Orders are hereby waived.
8) The Orders shall not disqualify any Covered Person
from any business that they otherwise are qualified, licensed or permitted to
perform under applicable state law.
9) For
any person or entity not a party to this Order, this Order does not limit or
create any private rights or remedies against the Firm including, without
limitation, the use of any e-mails or other documents of the Firm or of others
regarding research practices, or limit or create liability of the Firm, or
limit or create defenses of the Firm to any claims.
10) Nothing herein shall preclude the State of Maine, its
departments, agencies, boards, commissions, authorities, political subdivisions
and corporations, other than the Office of Securities and only to the extent
set forth in paragraph 1 above, (collectively, “State Entities”) and the
officers, agents or employees of State Entities from asserting any claims,
causes of action, or applications for compensatory, nominal and/or punitive
damages, administrative, civil, criminal, or injunctive relief against the Firm
in connection with certain research practices at the Firm.
Dated this
25th day of August, 2003.
By: s/Christine A. Bruenn
Christine A. Bruenn, Securities Administrator
State of
CONSENT TO ENTRY OF ADMINISTRATIVE ORDER
BY UBS SECURITIES LLC, f/k/a
UBS WARBURG LLC
UBS
SECURITIES LLC, formerly known as UBS Warburg LLC, hereby acknowledges that it
has been served with a copy of this Order, has read the foregoing Order, is
aware of its right to a hearing and appeal in this matter, and has waived the
same.
UBS
SECURITIES LLC admits the jurisdiction of the Office of Securities,
neither admits nor denies the Findings of Fact and Conclusions of Law contained
in this Order; and consents to entry of this Order by the North Dakota
Securities Commissioner as settlement of the issues contained in this Order.
UBS
SECURITIES LLC states that no promise of any kind or nature whatsoever was made
to it to induce it to enter into this Order and that it has entered into this
Order voluntarily.
Robert Dinerstein represents that he/she is Managing
Director of UBS SECURITIES LLC, and Huw
Jenkins represents that he/she is Managing Director of UBS
SECURITIES LLC and that, as such, they have been authorized by UBS SECURITIES
LLC to enter into this Order for and on behalf of UBS SECURITIES LLC.
Dated this 14th day of August, 2003.
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UBS Securities LLC |
UBS Securities LLC |
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f/k/a UBS Warburg LLC |
f/k/a UBS Warburg LLC |
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By: s/Robert Dinerstein |
By: s/Huw Jenkins |
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Title: Managing Director and Global General Counsel |
Title: Managing Director |
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SUBSCRIBED AND SWORN TO before me this ____ day of
____________, 2003 |
SUBSCRIBED AND SWORN TO before me this ____ day of
____________, 2003 |
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_________________________________ |
_________________________________ |
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Notary Public |
Notary Public |
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My commission expires: |
My commission expires: |
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________________________ |
________________________ |
CONSENT TO ENTRY OF
ADMINISTRATIVE ORDER
BY UBS FINANCIAL SERVICES
INC., f/k/a UBS PAINEWEBBER INC.
UBS
FINANCIAL SERVICES INC., formerly known as UBS PaineWebber Inc. hereby
acknowledges that it has been served with a copy of this Order, has read the
foregoing Order, is aware of its right to a hearing and appeal in this matter,
and has waived the same.
UBS
FINANCIAL SERVICES INC. admits the jurisdiction of the Office of Securities, neither admits nor denies the Findings of Fact
and Conclusions of Law contained in this Order; and consents to entry of this
Order by the Securities Commissioner as settlement of the issues contained in
this Order.
UBS
FINANCIAL SERVICES INC. states that no promise of any kind or nature whatsoever
was made to it to induce it to enter into this Order and that it has entered
into this Order voluntarily.
Robert
Silver represents that he/she is Executive Vice President of UBS
FINANCIAL SERVICES INC., and Ilene Marquardt represents that he/she is Deputy
General Counsel [and] Senior Vice President of UBS FINANCIAL SERVICES INC.
and that, as such, they have been authorized by UBS FINANCIAL SERVICES INC. to
enter into this Order for and on behalf of UBS FINANCIAL SERVICES INC.
Dated
this 19th day of August, 2003.
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UBS Financial Services Inc. |
UBS Financial Services Inc. |
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f/k/a UBS PaineWebber Inc. |
f/k/a UBS PaineWebber Inc. |
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By: s/Robert Silver |
By: s/Ilene Marquardt |
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Title: President, UBS Services USA LLC and Executive
Vice President of UBS Financial
Services Inc. |
Title: Deputy General Counsel Senior
Vice President |
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SUBSCRIBED AND SWORN TO before me this ____ day of
____________, 2003 |
SUBSCRIBED AND SWORN TO before me this ____ day of
____________, 2003 |
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_________________________________ |
_________________________________ |
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Notary Public |
Notary Public |
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My commission expires: |
My commission expires: |
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________________________ |
________________________ |