Finra Fines 10 Firms Over Coverage Of Toys 'R' Us IPO -- 2nd Update

By Chelsey Dulaney 

The Financial Industry Regulatory Authority said it fined 10 firms a total of $43.5 million for offering favorable coverage of Toys "R" Us's failed 2010 initial public offering in order to secure a spot as an underwriter on the offering.

The securities divisions at five of the banks-- Barclays PLC, Citigroup Inc., Credit Suisse, Goldman Sachs Group Inc. and J.P. Morgan Chase & Co.-- received a $5 million fine.

Deutsche Bank, Bank of America Corp.'s Merrill Lynch, Morgan Stanley, Wells Fargo & Co. and Needham & Co. received smaller penalties.

Finra said Toys "R" Us invited the 10 firms in April 2010 to compete for a role in its planned IPO, and the company disclosed plans that May to raise up to $800 million. Finra said the firms used their equity analysts to help secure a role in the IPO, offering favorable coverage.

Toys "R" Us asked the analysts to make presentations to management in an effort to ensure that the analysts' views on issues such as valuation factors aligned with the firms' investment bankers, Finra said. Some of the analysts voiced a positive outlook on Toys "R" Us and the IPO during their presentations, Finra said.

Toys "R" Us offered the 10 firms roles in the IPO, but didn't end up proceeding with the offering.

Finra also said Barclays, Citigroup, Credit Suisse, Goldman Sachs, J.P. Morgan and Needham didn't have adequate procedures in place for research analyst participation in investment banking pitches.

J.P. Morgan and Wells Fargo declined to comment, while a representative of Citigroup said the bank is pleased to put matter behind it.

"Each of these firms used their analyst to solicit investment banking business from Toys "R" Us and offered favorable research," said Susan Axelrod, executive vice president of regulatory operations at Finra. " This settlement affirms our commitment to policing the boundaries between research and investment banking to ensure that research is not improperly influenced."

Write to Chelsey Dulaney at [e-mail]

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