The Financial Industry Regulatory Authority (FINRA) has fined 10 firms a total of $43.5 million for allowing their equity research analysts to solicit investment banking business and for offering favorable research coverage in connection with the 2010 planned initial public offering of Toys “R” Us.
FINRA fined the following firms: Barclays Capital Inc., $5 million; Citigroup Global Markets Inc., $5 million; Credit Suisse Securities (USA), LLC, $5 million; Goldman, Sachs & Co., $5 million; JP Morgan Securities LLC, $5 million; Deutsche Bank Securities Inc., $4 million; Merrill Lynch, Pierce, Fenner & Smith Inc., $4 million; Morgan Stanley & Co. LLC, $4 million; Wells Fargo Securities LLC, $4 million; Needham & Company LLC, $2.5 million.
In April 2010, Toys “R” Us and its private equity owners invited these 10 firms to compete for a role in Toys “R” Us’ planned IPO. FINRA found that each of the 10 firms used its equity research analyst as part of its solicitation for a role in the IPO. Specifically, Toys “R” Us asked equity research analysts from each of the 10 firms to make separate presentations to Toys “R” Us’ management and sponsors for the purpose of ensuring that the analysts’ views on key issues, including valuation factors, were aligned with the views expressed by the firms’ investment bankers.
These presentations took place during the solicitation period on May 5, 2010. As detailed in the settlement documents, each of the firms implicitly or explicitly at these meetings, or in follow-up communications, offered favorable research coverage in return for a role in the IPO.
Toys “R” Us and its sponsors offered each of the 10 firms various roles in the IPO, but it eventually decided not to proceed with the offering. In settling the matter, the 10 firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
