The U.S. Securities and Exchange Commission has provided preliminary information regarding the distribution of the funds that will be established as a result of the global settlement between regulators and several Wall Street investment banks concerning analyst conflicts of interest.

There will be 10 Distribution Funds established, one for each of the nine settling firms other than Merrill Lynch, and one for Henry Blodget, who used to work for Merrill Lynch. Merrill Lynch will not have its own fund because it previously paid US$100 million in penalties to the states. The money that Jack Grubman pays to the court will be put into the fund for Citigroup Global Markets Inc., formerly known as Salomon Smith Barney Inc., for which Grubman used to work. All told, the funds will start with US$399 million.

The SEC says there are certain minimum requirements that a person must meet before they may receive money from the funds:

  • the person must have bought the stock in question through one of the brokerage firms that entered into a settlement agreement with the SEC;
  • the company in which the person invested must be referenced in the SEC’s complaint against the firm through which they bought that company’s stock;
  • the person must have bought the stock in question during the “relevant period” identified in the SEC’s complaint against the firm through which they bought the stock in question; and
  • the person must have lost money on his or her investment in the stock in question.



The SEC notes that the courts will appoint a Distribution Fund Administrator, on the recommendation of the commission. The administrator will prepare plans for the SEC that contain the complete and final terms for distribution of funds to investors within six months of being appointed. Two moths after that the plans will be submitted to the court. Within nine months after that it will be determined who gets paid from the funds.

The SEC says it envisions one administrator for all the funds. The administrator’s expenses will be paid by the firms, not the funds.

According to the SEC, investors are not required to take any action at this time to be eligible to receive money from the funds. And, the settlement papers expressly provide that investors who are eligible to receive payments from the funds are not precluded from pursuing any other remedy or recourse they may have.