-Caveat Lector- Wall Street's Scandals Highlight Need for Regulations New York, May 22 (Bloomberg) -- In a bull market, Wall Street's pursuit of profits can sometimes land securities firms and their employees on the wrong side of the law. This week, Merrill Lynch & Co., Morgan Stanley Dean Witter & Co., the New York Stock Exchange and Datek Online Brokerage Services or their employees were targeted by regulators or came under investigation for alleged illegal activities. Overseas, Credit Suisse Group admitted obstructing Japanese regulators. ``When you have the level of entrepreneurial ferocity that you get in markets from time to time, some people go overboard,'' said Roberta Karmel, a former Securities and Exchange Commission commissioner who teaches securities law at Brooklyn Law School. The SEC has begun broadening the scope of its regulation in new and existing segments of the financial industry. Chairman Arthur Levitt wants to nearly double the SEC staff that searches for fraudulent online stock activity. The SEC also expects to propose new rules to strengthen the role of independent directors in governing mutual funds. Self-regulatory agencies are also taking a more active role. The National Association of Securities Dealers is considering ways to prevent misleading ads by online brokers, and the NYSE is conducting a probe of abuses by floor traders. Unified Effort ``Maybe the SEC is going to be forced to unify the self- regulatory organizations'' into a single body, said John Coffee, a professor of securities law at Columbia University Law School. Investors expressed confidence in the regulatory system, saying the recent scandals are a product of competition spawned by the industry's growth during the nine-year U.S. economic expansion and record-setting stock market. ``Financial services is as heavily regulated an industry as any in the country,'' said Michael Holland, chairman of New York- based Holland & Co. ``It's not unusual to have eruptions like in the past week when you have this kind of volume of activity in the business. That's what happens in bull markets.'' Karmel, the former SEC commissioner, said companies for the most part aren't to blame, describing the recent cases as ``really rare lapses'' by organizations that care about their integrity. Copper Loan The ``lapses'' that came to light this week occurred at some of Wall Street's biggest firms: Merrill Lynch, the biggest U.S. broker, was charged by the Commodity Futures Trading Commission with financing one of the biggest commodities scandals. Merrill lent $500 million to Japan's Sumitomo Corp., which manipulated the copper market in 1995. Merrill paid $18.1 million to settle a related, class-action lawsuit filed by other trading firms last year. The company denied the CFTC charge. Morgan Stanley, the No. 1 securities firm by market value, is being investigated by New York law enforcement officials for allegedly paying $10,000 to a witness in a case the firm brought against a former employee. The former employee, Christian Curry, 25, was accused by Manhattan prosecutors in August of attempting to distribute forged, racist and sexually charged Morgan Stanley e-mails to pressure the firm into settling his civil-rights suit against it. Curry, who is black, has filed a $1.3 billion suit against Morgan Stanley. He claims Morgan Stanley conspired to entrap him and have him arrested. Prosecutors dropped the charges this week after discovering Morgan Stanley failed to disclose it had ``ongoing negotiations'' with a witness against Curry, C. Joseph Luethke, over ``possible pecuniary payments.'' Luethke had put Curry in contact with an undercover detective. Wired Money Morgan Stanley said it fired Curry in April 1998 for expense- account abuse, denying his charge of discrimination. ``Our conduct and the conduct of our employees in this matter was entirely appropriate and legal,'' the company said in a statement. The New York Stock Exchange case involved four former floor brokers at the exchange, the world's biggest, and two principals of Oakford Corp., a New York brokerage. All pleaded guilty to an illegal trading conspiracy at the exchange. The brokers admitted maintaining secret accounts through Oakford to make trades for themselves, a violation of conflict-of- interest rules. The brokers split profits from the trades with Oakford principals. The Oakford case has evolved into a broad investigation of the approximately 500 independent floor brokers who work on the NYSE floor. Federal prosecutors, the SEC and the NYSE believe as many as 64 floor brokers, or 13 percent of the total, may have shared profits with trading customers, according to people close to the investigations. Additionally, the SEC is investigating how the NYSE polices floor brokers and their trading for clients. Datek Online Brokerage Services, the No. 4 online broker, agreed to pay $50,000 to settle allegations it used client money to meet its own financial obligations. The firm also filed a false report of its capital position in 1998, kept inaccurate customer-account ledgers and other inaccurate records, the SEC alleged. Datek agreed to pay $50,000 to settle the allegations and former Datek chief financial officer Moishe Zelcer, 53, agreed to pay $10,000 for aiding and abetting the firm's violations, the SEC said. Datek also agreed to hire an independent consultant to review the firm's internal policies. Apologies The misdeeds in the U.S. securities business should be seen in perspective, said Karmel, the former SEC commissioner. ``In many other parts of the world, things like this go on and nobody gets caught,'' she said. ``We have mechanisms for ferreting out fraud.'' Credit Suisse Group, Europe's sixth-largest bank, admitted executives helped Japanese clients hide losses from investments. It apologized to Japanese regulators for trying to obstruct their investigation of the matter. Credit Suisse said an internal investigation showed ``several managers and other members of staff attempted to interfere with the FSA examination during its initial stages by concealing and destroying documents,'' Credit Suisse said. The bank may face fines, a forced reorganization or even the loss of some Japanese licenses, people familiar with the situation said. The investigation is the latest misstep for the Zurich-based bank. Earlier this month it was ordered to pay $240,000 to Sweden's stock exchange after one of its traders was found to have manipulated stock prices. May/22/1999 17:03 For more stories from Bloomberg News, click here. (C) Copyright 1999 Bloomberg L.P. DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance—not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credeence to Holocaust denial and nazi's need not apply. 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