FINRA looking into allegations that analysts face pressure to help win business
Wall Street regulators are probing allegations that companies may be seeking favorable reviews from research analysts, possibly as a condition for hiring their companies as underwriters.
Complaints that analysts are being pressured to favor certain companies planning initial public offerings to win business for their employers have sparked the investigation by the US Financial Industry Regulatory Authority (FINRA), Wall Street’s self-regulatory authority, according to media reports, all citing unidentified sources.
The interviewing of analysts by companies ahead of IPOs is becoming increasingly common, along with the growth of IPO advisers, or firms that specialize in advising companies in the early stages of an IPO, the New York Times reports. FINRA has asked for information from several companies regarding the investigation, although it has not yet started a formal investigation, according to the reports.
The New York Times reported the probe first, citing a series of unidentified research analysts who say companies are increasingly seeking to meet analysts as they search for an investment bank to hire for underwriting contracts. The Wall Street Journal, Bloomberg News and others reported the news later, also citing unidentified sources.
‘If you are going to see the people who are screening the underwriters, you are there for one purpose: to win banking business,’ one analyst told the New York Times on condition of anonymity.
The newspaper cited analysts as saying that companies planning IPOs often meet with analysts only hours before meeting with bankers from the analysts’ firm to discuss potential IPO-related business. The talks, which are supposed to focus on broad industry trends, can often turn to IPO valuation and other more specific subjects.
The news comes amid a surge in IPOs, both globally and in the US. The number of IPOs priced worldwide so far this year has risen 19.7 percent from the same period last year to 152, while total proceeds have increased 22.3 percent to $69.3 bn, according to data compiled by Renaissance Capital. North America accounts for more than half of the pricings and around 37 percent of the proceeds.