NEW YORK — A federal judge has asked securities regulators and 10 Wall Street firms for more details about the $1.4 billion deal they reached in April to settle allegations of biased stock ratings.
In an order made public Tuesday, U.S. District Judge William H. Pauley III, who must approve the settlement to make it final, told the firms and the Securities and Exchange Commission to provide clearer information by June 16.
Federal and state regulators pursued the settlement — which includes one of the largest penalties ever handed down by securities regulators — to shore up investor confidence.
Pauley said he wanted details on how the settlement money will be returned to investors and used to educate the public and pay for independent research.
He also wants to know what happens if one or more of the 50 states rejects their portion of $488 million in settlement money earmarked for the states, and whether the states have a deadline to decide whether to accept.
The deal was designed to settle allegations that some of Wall Street's biggest firms — including Citigroup, Merrill Lynch and Credit Suisse First Boston — issued biased ratings on stocks to lure investment banking business.
Two former star analysts — Internet expert Henry Blodget of Merrill Lynch and telecommunications analyst Jack Grubman of Citigroup's Salomon Smith Barney brokerage — also agreed to pay a total of $19 million in fines.
The National Association of Securities Dealers, the New York Stock Exchange and the SEC have also ordered research directors, investment bankers and chief executive officers at a dozen Wall Street firms to hand over e-mails and other records as part of their ongoing probe, people close to the investigation confirmed Tuesday.
They are looking for evidence that supervisors, bankers and executives knew analysts' stock research reports may have been influenced by investment-banking considerations, the sources said, speaking on condition of anonymity.
Specifically, regulators are seeking e-mail messages about analysts and their company ratings, and evaluations of the analysts written by their superiors, newspapers reported Tuesday. Subpoenas are seeking information from about 50 employees at the firms, the Wall Street Journal reported, citing unidentified sources.
The regulators are asking for records from many of Wall Street's chief executives, including Sanford Weill of Citigroup; Philip Purcell of Morgan Stanley; Richard Fuld of Lehman Brothers Holdings; and Henry Paulson Jr. of Goldman Sachs.
The SEC declined to offer specifics about the investigation, but noted that the commission had said in April that the probe would continue with an emphasis on supervision issues.
"Subpoenas are nothing other than a means of obtaining information," the SEC said. "They certainly don't suggest that the commission has reached any conclusion about their subjects or that a case is likely to or even could be brought against the recipients."