New York Stock Exchange Regulation announced today that it has taken disciplinary actions against two specialist firms and 13 individuals for assorted violations of NYSE rules and federal securities laws.

In one case, a former analyst, John Hoffman, and a former broker, Kevin McCaffrey, consented without admitting or denying guilt to findings that they failed to supervise former star telecom analyst, Jack Grubman, at Salomon Smith Barney Inc.

This matter relates to April 2003 settlement proceedings brought by the Securities and Exchange Commission against Grubman and Salomon, now known as Citigroup Global Markets Inc., as part of the Global Research Analyst Settlement. The SEC charged that Grubman issued fraudulent research reports and published misleading or exaggerated research regarding various companies that were investment-banking clients of SSB thereby aiding and abetting SSB’s violations of antifraud provisions and violating NASD and New York Stock Exchange rules.

An NYSE hearing panel found that during approximately 2000 and 2001 Hoffmann and McCaffrey, Grubman’s supervisors, failed to respond adequately to red flags that Grubman had unrealistically bullish ratings and price targets on seven companies he covered. It also found that they were aware of potential conflicts of interest posed by Grubman’s involvement in the firm’s telecom investment banking activities and were aware of Grubman’s importance to the firm’s telecom investment banking franchise, “but failed to respond adequately to specific evidence of investment banking pressure on Grubman not to downgrade his member firm’s investment banking clients”.

The NYSE imposed a penalty on Hoffman of a censure, a total penalty of US$120,001 and a 15-month supervisory suspension, and on McCaffrey a censure, a total penalty of US$120,001 and a 15-month supervisory suspension. Hoffman and McCaffrey consented to the penalties, respectively.

Separately, the SEC and NASD have filed settled enforcement proceedings against Hoffmann and McCaffrey based on their parallel investigations into the supervision of equity research analysts at firms involved in the Global Settlement.

The other cases against individuals involve supervisory deficiencies, engaging in outside businesses, sales practice misconduct, failing to pay an arbitration award in a timely way, attempted misappropriation, and failing to disclose a criminal history.

The two cases against firms involve SIG Specialists Inc. It consented without admitting or denying guilt to findings that it failed to maintain a fair and orderly market in an exchange listed security. The NYSE imposed a censure, a US$100,000 fine and an undertaking relating to supervision and control.

Also, after a contested hearing, Susquehanna Specialists Inc. of New York was found guilty of failing to appropriately supervise its specialist operations. The NYSE imposed a penalty on Susquehanna of a censure and a US$25,000 fine. This hearing took place during February 2004 through June 2004 and is being released now since the firm and the exchange appealed the decision. The appeal was recently withdrawn. As of November 2003, Susquehanna Specialists changed its name to SIG Specialists.

The cases, prosecuted by the NYSE Division of Enforcement, may be subject to review by the Securities and Exchange Commission and, thereafter, federal courts.