In 2002, after leaving Wall Street, I was named in an industry-wide regulatory complaint about conflicts of interest between the research and banking divisions of brokerage firms. I participated in the “global settlement”, and, as a result, can no longer work in the securities industry. It is not always obvious what this means, so here is some background.

During the 1990s, research analysts played a role in many financing transactions. For example, analysts helped their firms identify, evaluate, and solicit potential IPO candidates. This activity was part of the analyst’s job, and the practice was used throughout the industry. After the market crash of 2000-2001, however, New York Attorney General Eliot Spitzer, the SEC, and other regulators alleged that conflicts inherent in the practice had led numerous firms and analysts to issue misleading and/or fraudulent research, and instituted some structural reforms.

Specifically, in my case, the regulators alleged that some remarks my research team and I made in emails were inconsistent with views expressed in our research reports (For details, please see www.sec.gov). I participated in the “global settlement” of the complaint: Without admitting or denying the allegations, I paid a colossal fine and agreed to a bar from the industry.

The terms of my settlement preclude me from working for a brokerage firm or investment adviser. The former category includes firms like Goldman Sachs and Morgan Stanley, which sell and trade securities. The latter includes asset managers, such as mutual funds and hedge funds, as well as independent investment advisory firms.

Investment advisory firms provide advice about securities that is tailored to the circumstances of particular clients. What distinguishes them from industry research firms is the focus on securities (e.g., stocks and bonds), as opposed to companies and industries. What distinguishes them frompublishers, meanwhile, is their one-to-one advisory relationships with clients. Merely analyzing stocks and issuing “buy” and “sell” recommendations, in other words, does not make a firm an investment advisor—a distinction that exempts organizations like The Wall Street Journal, SmartMoney, Motley Fool, CNBC, investment newsletters, syndicated research services, books, and stock-related blogs from being investment advisors.

Cherry Hill Research does not provide stock recommendations or investment advice. We are a market research firm, and most of our services consist of conducting interviews and arranging consultations between industry experts and clients. We are developing a syndicated industry analysis service, but the publications are not tailored to the circumstances of particular subscribers. They also will not rate, recommend, or otherwise express opinions about securities.

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