CSFB stands accused of cheating small investors

The US state of Massachusetts has levied civil-fraud charges against Credit Suisse First Boston, seeking $2m (�1.3m) in damages for allegedly issuing tainted advice to small investors.

The action is the latest attempt on the part of regulators to split big banks' investment banking and research arms.

William Galvin, secretary of the Commonwealth of Massachusetts, announced the charges at a press conference on Monday, saying "it is time to clean up the marketplace."

The Massachusetts complaint alleges CSFB research analysts issued tainted stock advice in order to keep clients and secure new ones at the expense of small investors.

He said he took the action because the Securities and Exchange Commission failed to act on the claims.

Bold action

In outlining his state's complaint against CSFB, Mr Galvin said of significance was the fact the investment-banking division "completely controlled the analysis and research efforts" of the technology-stock group.

[CSFB] mocked investors and they mocked the effort of regulators

William Galvin, Massachusetts secretary

Massachusetts officials reviewed thousands company e-mails that allegedly showed CSFB analysts were under pressure to make positive ratings assessments about internet stocks in the high-flying 1990s.

The complaint alleges CSFB analysts gave stocks a "buy" rating while secretly telling its larger clients and insiders to steer clear of them.

Mr Galvin said there was "ample" evidence to back that claim up.

Mocking investors

The investment division's control over research resulted in "tainted and corrupted" ratings driven by the company's desire for profits, he said.

"This is unacceptable," Mr Galvin said.

"The American investor ought to know that the advice they're getting may be wrong but at least in good faith - not in bad faith."

He also characterised CSFB as having a cavalier attitude, saying "not only were they happy to give bad advice but they took pleasure in it."

"More importantly," Mr Gavin added, "they mocked investors and they mocked the effort of regulators to make sure that they complied with the law."

Quick action

CSFB also engaged in 'spinning' of initial public offerings, he said.

Such a scheme involves the brokerage setting aside IPO shares for the floating firm's executives on the condition they funnel investment banking business back to the brokerage.

In speaking to reporters, Mr Galvin said his state was aware it was acting on behalf of 42 other states which are also investigating fraud claims against investment bankers.

A spokeswoman for CSFB was not immediately available for comment following Mr Galvin's press briefing.

CSFB officials implored Mr Galvin prior to Monday's statement to take a go-slow approach in dealing with the accusations.

CSFB is the US-based subsidiary of Switzerland-based Credit Suisse Group.