“I would crawl on broken glass dragging my exposed junk to get this deal.”
That’s what an eager equities analyst at Needham & Company wrote in an email to a colleague, upon learning that a rival firm would be gunning for some much-desired IPO business from Toys’R’Us.
Crain’s called that gem “the Wall Street quote of the year,” but it was actually written back in 2010. That’s when Toys’R’Us first started planning their IPO, and a handful of research analysts began pandering to the toy giant in hopes of winning some business.
We’re hearing about it now because FINRA today announced it would fine Needham & Co. and nine other firms for the incident.
The toy giant actually sponsored the 10 firms to compete for roles in the IPO. They didn’t ask the firms to overvalue their them, but nonetheless each firm chose to use research analysts in their bids — many of whom met with and made presentations to Toys’R’Us.
This sort of behaviour from equity analysts, who are meant to be unbiased researchers, is not unprecedented. But Eliot Spitzer made a solid attempt to wipe it out when he was New York’s attorney general.
Back in 2003, Goldman Sachs and JP Morgan were fined $US110 million and $US80 million, respectively, for similar brown-nosing incidents. This time around, they’re being fined $US5 million each for their Toys’R’Us coverage. (They must have learned something from those FINRA run-ins, because their violations were a bit less graphic than Needham’s.)
Altogether, FINRA will collect $US43.5 million from the firms, which also include Barclays, Citigroup, Credit Suisse, Deutsche, Merrill Lynch, and Wells Fargo.
Jokes on them because Toys’R’Us never ended up doing the IPO. But they certainly did leave these guys — and their junk — exposed.