News & Resources

Inquiry Seen Into Firing of Analyst by Wachovia

By GRETCHEN MORGENSON, NY Times

Published: November 17, 2005

SECURITIES regulators are investigating Wachovia Securities' dismissal of Arturo Cifuentes, a longtime bond analyst who says he was repeatedly pressured to alter his research to suit the firm's investment bankers and its clients, a lawyer for the analyst said yesterday.

The firing of Mr. Cifuentes last April occurred just a few months after the analyst alerted his bosses to intimidation from investment bankers, said his lawyer, Jenice L. Malecki of Malecki Law in New York. He was dismissed, she said, because he refused to certify that his reports were an accurate reflection of his views and whether he was paid to make his recommendations.

Such certifications are required under the Sarbanes-Oxley Act, created to help eliminate the conflicts that arise when analysts are forced to tailor their research to meet demands from issuers or from other areas of their firms.

Officials at the Securities and Exchange Commission met with Mr. Cifuentes for almost an entire day late last month, Ms. Malecki said. In July, the analyst filed a whistle-blower suit against his former firm with the Department of Labor. That suit is in the early stages, Ms. Malecki said.

"Wachovia was really trying to hide the fact that he wouldn't certify by terminating him before the certification was required," Ms. Malecki said. "It's just another situation where a firm is trying to hide what is going on internally rather than dealing with problems head-on."

Christy Phillips, a Wachovia spokeswoman, said the firm did not comment on former employees. But it is, she said, committed to managing analyst conflicts effectively.

She noted that Wachovia was actively involved in developing best practices for fixed-income research with the Bond Market Association in 2004. "Given our policies and procedures, we believe any claims alleging that our fixed-income research analysts are subject to improper influence are meritless," she said.

Mr. Cifuentes, 52, started at Wachovia in July 2003 and began encountering pressure from investment bankers the following February, his lawyer said.

An established analyst, he specialized in assessing collateralized debt obligations, pools of loans that can be highly complex. When he joined Wachovia, the firm called Mr. Cifuentes "an industry veteran widely credited with developing a standard methodology for rating C.D.O. securities."

But his analysis seemed to provoke the firm's bankers almost immediately, the lawyer for Mr. Cifuentes said. "Within roughly a year, there were 10 instances of situations we feel were inappropriate," Ms. Malecki said.

"A report would be going out and a comment would come back saying this is really bad for business. Some requests originated from clients of the firm that wanted a certain tone in Arturo's research."

One aspect of his analysis that seemed to disturb some Wachovia investment bankers, Ms. Malecki said, was the conclusion by Mr. Cifuentes that moves in the collateralized debt obligations he rated were tied to action in other market indexes. The firm preferred an assessment that the debt obligations would not be affected by other market moves, she said.

After receiving no relief from his superiors in Wachovia's research department, Mr. Cifuentes appealed to the firm's compliance department last February, Ms. Malecki said. After an investigation, the compliance officials declined to support him, she said.

The lawsuit by Mr. Cifuentes was reported yesterday by Dow Jones Newswires.

Ms. Malecki said that her client received a call from the S.E.C. requesting a meeting about 10 days after Mr. Cifuentes filed a complaint with the commission. Such a quick response seems to indicate a high level of regulatory interest in matters involving analysts under pressure to produce favorable research.

Mr. Cifuentes, who holds degrees in civil engineering, applied mechanics as well as an M.B.A. in finance, is now an analyst at R. W. Pressprich & Company, a fixed-income research firm in New York.