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Inside scoop

At that time, Wall Street research was under a microscope. Eliot Spitzer, then the New York attorney general, had exposed how analysts routinely slanted research to win lucrative investment banking business. In 2003, Lehman was among 10 firms that reached a $1.4 billion settlement. They all promised to wall off research operations from other parts of their business.

But Ted Parmigiani, says he was asked to break those new rules. Lehman bosses, he contends, told him to write research that would support investment banking business -- a violation of the Spitzer settlement. He says he was warned not to make negative comments about companies, even when he thought they were merited, lest he antagonize corporate executives. In 2003, he says, he was chastised for downgrading a company that was a corporate finance client of Lehman's.

Most alarming, Mr. Parmigiani says, was that Lehman had created a system that gave its stock trading desks access to its analysts' research recommendations before those recommendations were made public. The Product Management Group, as this business unit was known, scheduled analysts' calls on the firm-wide squawk box system and was part of the research department.

Mr. Parmigiani says the Product Management Group often delayed the announcements of recommendation changes for no apparent reason. He says he began to suspect that the delays were meant to allow Lehman's traders to put on positions ahead of the news and to give the firm's top sales representatives time to alert favored clients.

On March 30, 2005, Mr. Parmigiani had been scheduled to meet with a series of hedge fund clients, including Moore Capital, to discuss his research. At the last minute, Jared Demark, a vice president in Lehman's institutional equity sales who covered the hedge funds and had planned to accompany him, bowed out. In an e-mail to Mr. Parmigiani, Mr. Demark wrote: "Go to the Moore meeting without me, we have big ratings change looming ... "

While Mr. Parmigiani did not learn precisely what Mr. Demark meant by that e-mail, it fueled Mr. Parmigiani's concern that Lehman was alerting hedge funds to analysts' pending changes.


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