The Financial Industry Regulatory Authority ( FINRA) has launched an investigation into improper trading in advance of stock research and ratings at Citigroup, J.P. Morgan Chase, Morgan Stanley and ten other financial firms, it was reported today by the Wall Street Journal and Reuters News Service.
FINRA – formerly the National Association of Securities Dealers (NASD) – has since August examined weekly meetings at Goldman Sachs where research analysts offer tips to traders and then to big clients. According to the Wall Street Journal, this examination has now been expanded to include ten other firms and FINRA is now seeking information concerning any meetings where unpublished research opinions or trading ideas were disclosed to non-research employees or clients.
“FINRA does not reveal names of firms that have received sweep letters,” said its spokesman Herb Perone to Reuters. Citigroup, JPMorgan and Morgan Stanley could reportedly not be reached immediately for comment.
“Advance tips on research information are similar to inside information tips from company insiders,” said securities attorney William Shepherd. “A chosen few investors can profit from knowing research information and ratings prior to the public or those who contract for this information.”
“However, claims of ‘front-running’ research have in the past been even more difficult to pursue for the SEC and prosecutors than inside information claims,” added Shepherd. “FINRA has greater flexibility to fashion sanctions for such actions.”