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ARTICLE · 04 OCTOBER 2011

FINRA Expresses Concern About Issuers Inducing Favorable Research Coverage

Fried Frank Harris Shriver & Jacobson
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It has come to FINRA’s attention that certain issuers may be attempting to extract implicit promises of favorable research by suggesting publicly or directly to potential deal participants in advance of an anticipated offering that positive research coverage will be an implicit or explicit condition to selection as an underwriter or selling group member.

United StatesFinance and Banking
Linda Riefberg
Linda Riefberg

The research analyst conflict of interest issue is back. This month, FINRA warned:

It has come to FINRA's attention that certain issuers may be attempting to extract implicit promises of favorable research by suggesting publicly or directly to potential deal participants in advance of an anticipated offering that positive research coverage will be an implicit or explicit condition to selection as an underwriter or selling group member.1

This issue famously reared its head in the early 2000's, culminating in the 2003 Global Research Analyst Settlement (GRAS) involving the SEC, self regulatory organizations, state securities regulators and a dozen investment banks. Alleging that investment banks were providing positive research coverage in order to obtain banking business from issuers, the regulators secured settlements involving over a billion dollars in sanctions and restitution payments, and undertakings to revise firm procedures and to provide independent

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