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SECURITIES & EXCHANGE COMM. v. BEAR

August 25, 2003

SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, -AGAINST- BEAR, STEARNS & CO. INC., DEFENDANT; SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, -AGAINST- JACK BENJAMIN GRUBMAN, DEFENDANT; SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, -AGAINST- J.P. MORGAN SECURITIES INC., DEFENDANT; SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, -AGAINST- LEHMAN BROTHERS INC., DEFENDANT;
[ PAGE 2]
SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, -AGAINST- MERRILL LYNCH, PIERCE, FENNER SMITH INCORPORATED DEFENDANT; SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, -AGAINST- U.S. BANCORP PIPER JAFFRAY INC., DEFENDANT; SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, -AGAINST- UBS WARBURG LLC, DEFENDANT; SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, -AGAINST- GOLDMAN, SACHS & CO., DEFENDANT;
[ PAGE 3]
SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, -AGAINST- CITIGROUP GLOBAL MARKETS INC., F/K/A SALOMON SMITH BARNEY, DEFENDANT; SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, -AGAINST- CREDIT SUISSE FIRST BOSTON LLC, F/K/A CREDIT SUISSE FIRST BOSTON CORPORATION, DEFENDANT; SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, -AGAINST- HENRY MCELVEY BLODGET, DEFENDANT;
[ PAGE 4]
AND SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, -AGAINST- MORGAN STANLEY & CO. INCORPORATED, DEFENDANT



The opinion of the court was delivered by: William Pauley, District Judge

MEMORANDUM AND ORDER

On July 9, 2003, individual investors Cliff Hughes and Pamela Kehn moved to intervene, or in the alternative to participate as amici curiae, in the "global research analyst settlement" actions*fn1 pending before this Court. The Securities and Exchange Commission ("SEC") and the defendant investment banks and individuals*fn2 oppose intervention on the principal grounds that: (1) intervention under Rule 24 of the Federal Rules of Civil Procedure is inappropriate and procedurally deficient; [ Page 5]

and (2) conferral of formal amici status on Hughes and Kehn would cause unnecessary delay and complication in this Court's review of the proposed consent judgments. Nevertheless, the SEC does not oppose public comment on the proposed consent judgments. For the reasons set forth below, Hughes' and Kehn's motion for intervention, or in the alternative to participate as amici curiae, is denied.

BACKGROUND

On April 28, 2003, the SEC filed civil actions to redress violations of the Securities Act of 1933 and rules of the NASD, Inc. and the New York Stock Exchange, Inc. against ten separate investment banks and two former research analysts. More specifically, the SEC alleged that the investment banking groups of the defendant banks exerted inappropriate influence over their respective in-house equity research analysts, thereby spawning undisclosed conflicts of interest and compromising the objectivity of their research reports. In addition, the SEC filed civil actions against two former research analysts for issuing allegedly conflicted advice.

Months of negotiations among the SEC, the defendants and various state attorneys general culminated in the filing of twelve (12) proposed consent judgments in this District. The proposed consent judgments provide for both injunctive and [ Page 6]

monetary relief, and contemplate the creation of Distribution Funds for most of the defendant investment banks, to be administered pursuant to plans devised by an Administrator and approved by the SEC and the Court, and an Investor Education Fund, to be administered by a separate Administrator pursuant to a plan to be approved in the same manner. Currently, this Court is considering whether to approve the proposed consent judgments in their present form.

On June 19, 2003, the law firm of Hooper & Weiss, L.L.C. ("Hooper & Weiss") requested permission to file a motion to "participate" in the underlying actions on behalf of "over 12,000" allegedly aggrieved investors. (Letter to the Court from Hooper & Weiss, dated June 19, 2003 ("Hooper & Weiss Letter") at 1). Although the letter did not specify how such participation should be structured, it stated that the contemplated motion would "pursue [their] clients' interest in participating in the process by which the Court will determine whether to adopt, and (if so) how to administer, the consent decrees that have been proposed by the parties." (Hooper & Weiss Letter at 1.) The Court granted Hooper & Weiss' request to file a motion, and set a briefing schedule. (Scheduling Order, dated July 2, 2003.) On July 9, 2003, Hughes and Kehn filed their motion to intervene.

In that motion, the movants assert their desire to assist the Court in determining "the most appropriate procedural [ Page 7]

mechanism . . . [to] receive useful input on the questions presented by [its] consideration of the proposed decrees." (Movants' Br. at 1-2). In their reply, Hughes, a resident of Iowa and customer of Solomon Smith Barney (Movants' Br. at 2), and Kehn, a resident of Iowa and customer of Merrill Lynch (Movants' Br. at 2), offer a preview of some of that "useful input." The movants urge this Court to refuse to approve the proposed consent judgments unless they: (1) include payments "for the defrayment of investors' portion of arbitration and arbitrator's fees;" (2) provide for "public access to documents that were discovered during the course of the investigations that ultimately led to these cases;" and (3) prohibit the defendants from seeking evidentiary rulings excluding certain documents in individual arbitration actions brought on behalf of allegedly injured investors. (Reply Br. at 7-8.)

DISCUSSION

I. Intervention

Intervention is not an avenue for advancing the competing agendas of non-parties to a settlement, but instead "is a procedural device that attempts to accommodate two competing policies: efficiently administrating legal disputes by resolving all related issues in one lawsuit, on the one hand, and keeping a single lawsuit from becoming unnecessarily complex, unwieldy or [ Page 8]

prolonged, on the other hand." United States v. Pitney Bowes, Inc., 25 F.3d 66, 69 (2d Cir. 1994). If this Court permitted Hughes and Kehn to intervene, such an accommodation would be elusive. The inevitable resultant delay would impair this Court's ability to ...


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