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June 12, 2001

Far Too Late and Not Far Enough

The Security Industry Association's new guideline prohibiting Wall Street investment firms from linking analyst pay to underwriting deals is far too little and far too late.

Just yesterday, online information service released a study detailing the wide gap between the performance of stocks pushed by analysts whose firms also have underwriting deals with the companies offering the stocks and the performance of stocks with no connection to the firms. The results didn't surprise us one bit.

Investors following the advice of any analyst lost money. But, those who followed the advice of an analyst from a firm that also did the underwriting for the company offering the recommended shares lost an average of 53%. In contrast, though, those who took the suggestions of analysts not affiliated with the company lost just 4%.

We hope these new guidelines will help close the gap. But they are just guidelines -- the SIA is an industry trade group with no enforcement powers. Perhaps after Congress meets about this very matter on Thursday, investors will get some real protection.

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