There's a Wall Street firm that will literally never tell you to sell

Traders celebrate end of yearScott Olson/GettyTraders in the S&P 500 stock index futures pit at the Chicago Mercantile Exchange are showered in confetti December 31, 2004 in Chicago, Illinois. Traders and clerks traditionally toss the confetti at the closing bell to signify the end of the trading year

Brokerage firm Sidoti & Company will literally never put a sell rating on a stock, according to the Wall Street Journal.

That is because it’s against company policy to publish negative research about another company.

A whistleblower filed a complaint about this to the SEC, and the Journal reviewed internal documents that support what the whistleblower claims.

And the claims are:

  • Sidoti analyst bonuses are decided not based on the quality of their research, but the number of meetings with companies and executives that mean more business for Sidoti on the trading side.
  • Sidoti would never publish research that told clients to “sell” or “short”, but might say a stock was “overvalued” or “neutral” and then change the stock’s price target.

Sidoti, you should know, has filed for a $US35 million IPO. So perhaps in the near future, since it’s unclear if the SEC has done anything about these claims, you could put a “buy”, “sell” or “neutral” rating on the stock.

You can check out Sidoti’s most recent IPO, paperwork, filed May 4th, right here. If you get to page 14, they let you know that their rating system might be a little complicated [emphasis ours]:

Because our rating system consists of only two ratings, “BUY” and “NEUTRAL”, but no “SELL” rating, our clients may not fully appreciate our analyst’s view of a covered company unless careful attention is paid to the accompanying price targets and the full research report.

…For example, a NEUTRAL rating could be applicable to a company about which our analyst may have a relatively negative view. Because we do not have a “SELL” or “NEGATIVE” rating, there is the potential for investor confusion. We include relevant disclosure of this fact in each of our research reports, but it is possible an investor will nevertheless misunderstand our rating system.

So there’s that.

If this sounds familiar to anyone who was around Wall Street in the 1990s during the dot com boom (when Sidoti was founded) you might be familiar with this game. Back then, banks like Morgan Stanley and Citi were handed millions in fines for placing positive ratings on a company’s stock in order to please management and drum up more business for the bank.

More on this over at the WSJ>>

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