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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
SECURITIES AND EXCHANGE COMMISSION, :Civil Action No.
:
Plaintiff,:03 Civ. 2937 (WHP)
:
– against –:
:ORDER REGARDING
BEAR, STEARNS & CO. INC.,:INVESTOR EDUCATION
:PLAN
Defendant.:
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:
SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.
Plaintiff,:
:03 Civ. 2938 (WHP)
– against –:
:
JACK BENJAMIN GRUBMAN,:
:
Defendant.:
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:
SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.
Plaintiff,:
:03 Civ. 2939 (WHP)
– against –:
:
J.P. MORGAN SECURITIES INC.,:
:
Defendant.:
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:
SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.
Plaintiff,:
:03 Civ. 2940 (WHP)
– against –:
:
LEHMAN BROTHERS, INC.,:
:
Defendant.:
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:
SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.
Plaintiff,:
:03 Civ. 2941 (WHP)
– against –:
:
MERRILL LYNCH, PIERCE, FENNER &:
SMITH INCORPORATED,:
:
Defendant.:
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:
SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.
Plaintiff,:
:03 Civ. 2942 (WHP)
– against –:
:
U.S. BANCORP PIPER JAFFRAY, INC.,:
:
Defendant.:
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:
SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.
Plaintiff,:
:03 Civ. 2943 (WHP)
– against –:
:
UBS WARBURG LLC,:
:
Defendant.:
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:
SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.
Plaintiff,:
:03 Civ. 2944 (WHP)
– against –:
:
GOLDMAN, SACHS & CO.,:
:
Defendant.:
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:
SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.
Plaintiff,:
:03 Civ. 2945 (WHP)
– against –:
:
CITIGROUP GLOBAL MARKETS, INC., F/K/A   :
SALOMON SMITH BARNEY INC.,:
:
Defendant.:
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:
SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.
Plaintiff,:
:03 Civ. 2946 (WHP)
– against –:
:
CREDIT SUISSE FIRST BOSTON LLC,:
F/K/A CREDIT SUISSE FIRST BOSTON:
CORPORATION,:
:
Defendant.:
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:
SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.
Plaintiff,:
:03 Civ. 2947 (WHP)
– against –:
:
HENRY McKELVEY BLODGET,:
:
Defendant.:
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:
SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.
Plaintiff,:
:03 Civ. 2948 (WHP)
– against –:
:
MORGAN STANLEY & CO. INCORPORATED,   :
:
Defendant.:
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:
SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.
Plaintiff,:
:04 Civ. 6909 (WHP)
– against –:
:
DEUTSCHE BANK SECURITIES INC.,:
:
Defendant.:
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:
SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.
Plaintiff,:
:04 Civ. 6910 (WHP)
– against –:
:
THOMAS WEISEL PARTNERS LLC,:
:
Defendant.:
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ORDER REGARDING INVESTOR EDUCATION PLAN
On October 31, 2003, this Court approved and entered the Final Judgments in these
related actions resolving the SEC’s complaints against ten major investment banks and two
individuals concerning equity research analyst practices in the late 1990s.  At that time, this
Court entered an Order Regarding Investor Education for each of the seven investment bank
defendants contributing investor education funds (“Investor Education Orders”).  Section B of
the Investor Education Orders required the SEC to propose an Investor Education Plan for the
Court’s consideration and approval.  The SEC submitted its plan on February 13, 2004.  The
Court approved that plan by Order dated March 25, 2004.
On September 24, 2004, this Court approved and entered a Final Judgment resolving the

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SEC’s complaint against Deutsche Bank concerning equity research analyst practices. That Final
Judgment required Deutsche Bank to contribute investor education funds pursuant to the plan
approved by the Court on March 25, 2004.
By application dated May 4, 2005, the SEC proposed a new investor education plan that
would dissolve the Investor Education entity (“Investor Education Entity”) established pursuant
to this Court’s March 25, 2004 Order, and fulfill the investor education objectives of the Final
Judgments by charting a different course.  In its May 4, 2005 plan, the SEC proposed
distributing the investor education funds on deposit at the Federal Reserve Bank of New York to
the NASD Investor Education Foundation (“NASD Foundation”).
On June 9, 2005, this Court conducted a hearing to consider the merits of the SEC’s new
investor education plan.  Prior to the hearing, this Court received submissions objecting to the
SEC’s proposal.  Having considered the SEC’s motion as well as the submissions of interested
parties and the presentations of counsel, this Court grants the SEC’s application on the following
terms.
This Order supersedes the Court’s Investor Education Orders dated October 31, 2003 and
modifies the Deutsche Bank Final Judgment dated September 24, 2004.  The Investor Education
Plan approved by the March 25, 2004 Order is rescinded.
A.Dissolution Of Investor Education Entity
1.The Investor Education Entity established pursuant to this Court’s March 25,
2004 Order is directed to take all necessary steps to wind down its affairs and terminate its
corporate existence.  
2.Within thirty days of entry of this Order, the Investor Education Entity shall file

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with the Court an application for payment of reasonable and necessary fees, costs, and expenses
incurred by the entity.  The application may include legal fees, costs and expenses associated
with the termination of the Investor Education Entity.  At least fifteen days before making such
application to the Court, the Investor Education Entity shall submit the application to the SEC,
and the SEC shall advise the Court whether it has any objection.  Upon approval of any such
application by the Court, the Court by an implementing order will authorize the payment of the
approved fees and expenses.
3.All notices, reports, and other information required to be submitted to the SEC
under this Order shall be sent to the attention of Susan F. Wyderko, SEC, Office of Investor
Education and Assistance, 100 F. Street, N.E., Washington, D.C., 20549.
4.The income tax reporting requirements relating to the investor education funds on
deposit at the Federal Reserve Bank of New York (“FRBNY Investor Education Accounts”)
shall be the responsibility of Damasco & Associates, which is appointed the Interim Tax
Administrator of the FRBNY Investor Education Accounts pursuant to the terms set forth in
Section F of this Order.  After the funds are transferred to the NASD Foundation, any tax
reporting requirements relating to any income earned on such funds shall be the sole
responsibility of the NASD Foundation for the period during which the NASD Foundation
administers the funds.
 5.Monies in the FRBNY Investor Education Accounts are intended to be “qualified
settlement funds” pursuant to Section 468B(g) of the Internal Revenue Code and regulations
thereunder.  Monies in the FRBNY Investor Education Accounts may be used to pay any taxes
on income earned by such accounts.  The expenses referred to in ¶ A.2 of this Order shall be

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obligations of and shall be paid from the qualified settlement funds and not the Investor
Education Entity.
    6.The resignations of the Investor Education Entity’s board members and officers
Charles D. Ellis, George G. Daly, Sheila C. Bair, Joseph L. Dionne, Carol J. Loomis, Lionel L.
Nowell, III, Rebecca W. Rimel, and Jay Vivian will be effective upon the receipt by the entity of
a Certificate of Dissolution issued by the State of Delaware.  Counsel for the entity shall provide
a copy of the Certificate of Dissolution to the Court and the SEC.
B.The Distribution Of The Investor Education Funds 
1.All of the funds in the FRBNY Investor Education Accounts and all future
investor education installment payments required of defendants Bear Stearns & Co., Inc.,
Citigroup Global Markets, Inc., f/k/a/ Salomon Smith Barney, Inc., Goldman, Sachs & Co., J.P.
Morgan Securities, Inc., Lehman Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, UBS Warburg LLC, and Deutsche Bank Securities, Inc. (less the taxes and
approved fees, costs, and expenses described in ¶¶ A.2, A.4, and F.1-5 of this Order, and any
outstanding amount due for the administrative court registry fee as required under ¶ A.2 of the
Final Judgments), shall be distributed to the NASD Foundation by an implementing order of this
Court.  For the period during which the NASD Foundation administers these funds, the terms of
this Order shall apply to the NASD Foundation.  These funds, and any interest thereon, shall be
maintained by the NASD Foundation in a segregated account (the “NASD Foundation Investor
Education Account”) to be used exclusively to effectuate the purposes of this Order.  The funds
in the NASD Foundation Investor Education Account shall be invested in money market funds
or securities with maturities of less than six months and backed by the full faith and credit of the

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U.S. government.
2.The future investor education installment payments of the defendants identified in
¶ B.1 of this Order, required to be paid annually on or before the month and day of entry of the
Final Judgment in each case, shall be made directly to the NASD Foundation.  The NASD
Foundation shall provide these defendants with payment/wire instructions for deposit to the
segregated account referred to in ¶ B.1 (the NASD Foundation Investor Education Account), and
defendants shall provide the Court and the SEC with contemporaneous proof of the payments. 
The NASD Foundation shall keep account records sufficient to document whether each
defendant identified in ¶ B.1 of this Order has made timely and complete payments.
3.The NASD Foundation shall use the funds in the NASD Foundation Investor
Education Account to award grants pursuant to the guidelines of its grant program, appended for
reference as Exhibit A.  The funds in the NASD Foundation Investor Education Account shall be
utilized for new or expanded education initiatives.  The NASD Foundation Investor Education
Account is not intended to replace current NASD funding of the NASD Foundation.  At a
minimum, such NASD funding should continue in the same proportion as such funding bore to
the NASD’s overall 2004 budget during the period the NASD Foundation Investor Education
Account exists. 
  4.As applied to the grantees of grants awarded by the NASD Foundation from the
NASD Foundation Investor Education Account, such grants shall not be used:
(A) to benefit, directly or indirectly:
(1)beyond any payments authorized by the Court, any person involved in the
review or approval of applications for grants, and any entity that employs

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such a person;
(2)Defendants, their predecessors, successors, or their subsidiaries, affiliates,
present or former officers, directors, or their employees, or those in active
concert or participation with them, through subrogation or otherwise;
(3)any person who has been convicted of a crime substantially related to any
act or practice, or the types of acts or practices, identified in the
Complaints in the captioned actions;
(4)any person who has been enjoined by a court or sanctioned by the
Commission or any other regulatory authority for any act or practice, or
the types of acts or practices, identified in the Complaints in the captioned
actions; or
(5)any person named as a defendant in a pending federal criminal or civil
enforcement action for any act or practice, or the types of acts or practices,
identified in the Complaints in the captioned actions;
(B)to promote, directly or indirectly, the investment products or services of any
single firm or entity; provided, however, that monies from the NASD Foundation
Investor Education Account may be directed exclusively to the NASD Foundation
for use and disposition in accordance with this Order;
(C)for any unlawful or unethical purpose; or
(D)for any non-educational or non-research purpose.
  5.It is the intention of this Order that the funds in the NASD Foundation Investor
Education Account will not be used as a permanent endowment.  The NASD Foundation shall

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use its best efforts to distribute these funds in an expeditious manner, consistent at all times with
the terms of this Order, and by no later than ten years from the date of this Order; provided,
however, that the NASD Foundation shall have the right to seek the Court’s permission to
modify this deadline on notice to the SEC.
6.Members of the NASD Foundation Board of Directors will be selected by NASD,
subject to the relevant NASD Foundation By-Laws and the provisions of this Order.  The NASD
will consult with the SEC about proposed NASD Foundation Board appointments, and agrees to
appoint persons acceptable to the SEC.  The NASD Foundation By-Laws shall be amended to
require that at least a majority of the Board of Directors of the NASD Foundation shall consist of
members of the public who are not employed by a securities regulator and who have no material
business relationship with the securities industry, provided that a “material business
relationship” does not include an educational or research entity that is unaffiliated with the
securities industry.
7.The NASD Foundation may use a portion of the funds in the NASD Foundation
Investor Education Account to cover the reasonable and necessary expenses associated with
distributing grant awards from the funds in the NASD Foundation Investor Education Account
and complying with the terms of this Order.  
  8.The NASD Foundation shall provide the SEC with quarterly reports that describe
the use of funds in the NASD Foundation Investor Education Account in the preceding quarter
as well as NASD Foundation’s strategic plan for use of the funds in the upcoming quarter.  The
SEC shall file a copy of each NASD Foundation quarterly report with this Court.  Each report
shall, at a minimum, identify both approved and non-approved grant applications since the last

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quarterly report.  In each case, a report will identify the party seeking the grant, describe the
intended use of the grant, the grant amount, the project term, and the type of grant (education,
research, or combination education/research).  The report should detail all expenses incurred in
distributing grant awards from the NASD Foundation Investor Education Account.  Each report
shall also include an accounting of receipts and expenses in reasonable detail.  The NASD
Foundation shall also provide the SEC with an annual report setting forth the NASD
Foundation’s strategic plan for the upcoming year regarding the use of funds in the NASD
Foundation Investor Education Account; the fourth quarter report will be included in the annual
report.  The SEC shall file each NASD Foundation annual report with the Court.
9.An annual audit of the NASD Foundation shall be performed by an independent
third party.  The results of the audits will be provided to the SEC and the SEC will file them with
this Court.
10.In the event of a proposed dissolution of the NASD Foundation, the SEC shall file
an application with the Court setting forth a plan for the disposition of any remaining funds in
the NASD Foundation Investor Education Account.
C.Amendments To Final Judgment Against Merrill Lynch
1.The following paragraphs in Section C of this Order apply to the Final Judgment
entered against Merrill Lynch, Pierce, Fenner & Smith, Incorporated (“Merrill Lynch Final
Judgment”).
2.Section IV, Paragraph A.2 of the Merrill Lynch Final Judgment is amended to
delete the reference to an “Investor Education Fund,” as that term was defined as a depositary
account of the prior investor education entity.  Section IV, Paragraph A.2 of the Merrill Lynch

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Final Judgment is further amended to delete the last three sentences that require the deduction
from the investor education funds of an administrative court registry fee.
3.Section IV, Paragraph B.1 of the Merrill Lynch Final Judgment is amended to
delete the reference to an “Investor Education Fund.”
4.Section IV, Paragraph B.2 of the Merrill Lynch Final Judgment is amended to
delete the requirement that the investor education funds be used to help establish a new tax-
exempt, non-profit grant administration organization, and is further amended to delete references
to the term “Investor Education Fund.”
5.Section IV, Paragraph C of the Merrill Lynch Final Judgment is amended to
delete the references to an “Investor Education Fund.”
6.Section IV, Paragraph D of the Merrill Lynch Final Judgment is amended to
delete the references to an “Investor Education Fund.”
D.Amendments To Final Judgment Against Deutsche Bank
1.The following paragraphs in Section D of this Order apply to the Final Judgment
entered against Deutsche Bank Securities, Inc. (“Deutsche Bank Final Judgment”).
2.Section IX, Paragraphs A.1 and A.2 of the Deutsche Bank Final Judgment is
amended to delete the reference to an “Investor Education Fund,” as that term was defined in
Section IX, Paragraph A.2 as a depositary account of the prior investor education entity. 
3.Section IX, Paragraph A.2 of the Deutsche Bank Final Judgment is amended to
delete the last three sentences that require the deduction from the investor education funds of an
administrative court registry fee.
4.Section IX, Paragraph B.1 of the Deutsche Bank Final Judgment is amended to

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delete the reference to an “Investor Education Fund.”
5.Section IX, Paragraph B.2 of the Deutsche Bank Final Judgment is amended to
delete the requirement that the investor education funds be used to help establish a new tax-
exempt, non-profit grant administration organization, and is further amended to delete references
to the term “Investor Education Fund.”
6.Paragraph C.1 of the Deutsche Bank Final Judgment, which mirrored a provision
of Investor Education Orders now superseded, is deleted.  The provision, as amended, is set forth
in this Order.
 7.Paragraph C.2 of the Deutsche Bank Final Judgment, which mirrored a provision
of Investor Education Orders now superseded,  is deleted.  The provision, as amended, is set
forth in this Order.
 8.Paragraph D of the Deutsche Bank Final Judgment is deleted.
9.Paragraphs E, F.1, F.2, and F.5 of the Deutsche Bank Final Judgment are deleted,
as these provisions applied to the creation and continued operation of a new investor education
entity.
10.Paragraphs F.3, F.4, F.6, F.7 and G of the Deutsche Bank Final Judgment, which
mirrored provisions of Investor Education Orders now superseded, are deleted.  The provisions,
as amended, are provided for in this Order.
E.Amendments To Final Judgments Against Other Defendants Required To Make
Investor Education Payments
1.The following paragraphs in Section E of this Order apply to the Final Judgments
entered against defendants Bear Stearns & Co., Inc., Citigroup Global Markets, Inc., f/k/a/
Salomon Smith Barney, Inc., Goldman, Sachs & Co., J.P. Morgan Securities, Inc., Lehman

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Brothers, Inc., and UBS Warburg LLC.
2.Section IX, Paragraphs A.1 and A.2 of the Final Judgments are amended to delete
the reference to an “Investor Education Fund,” as that term was defined in Section IX, Paragraph
A.2 as a depositary account of the prior investor education entity. 
3.Section IX, Paragraph A.2 of the Final Judgments is amended to delete the last
three sentences that require the deduction from the investor education funds of an administrative
court registry fee.
4.Section IX, Paragraph B.1 of the Final Judgments is amended to delete the
reference to an “Investor Education Fund.”
5.Section IX, Paragraph B.2 of the Final Judgments is amended to delete the
requirement that the investor education funds be used to help establish a new tax-exempt, non-
profit grant administration organization, and is further amended to delete references to the term
“Investor Education Fund.”
6.Section IX, Paragraph C of the Final Judgments is amended to delete the
references to an “Investor Education Fund.”
7.Section IX, Paragraph D of the Final Judgments is amended to delete the
references to an “Investor Education Fund.”
F.Appointment Of Interim Tax Administrator
1.Damasco & Associates is appointed as Interim Tax Administrator to execute all
income tax reporting requirements, including the preparation and filing of tax returns, with
respect to funds in the FRBNY Investor Education Accounts.  Damasco & Associates will not
have tax administrator responsibilities for any income earned on these funds after they are

-16-
transferred to the NASD Foundation.
2.Damasco & Associates shall be designated the interim administrator of the
FRBNY Investor Education Fund Accounts, pursuant to section 468B(g) of the Internal Revenue
Code (IRC), 26 U.S.C. § 468B(g), and related regulations, and shall satisfy the administrative
requirements imposed by those regulations, including but not limited to (a) obtaining a taxpayer
identification number, (b) filing applicable federal, state, and local tax returns and paying taxes
reported thereon out of the Investor Education Fund Accounts, and (c) satisfying any
information, reporting, or withholding requirements imposed on distributions from the FRBNY
Investor Education Accounts.  The Interim Tax Administrator shall contemporaneously provide
copies of all such filings to the SEC.
3.The Interim Tax Administrator shall, at such times as the Interim Tax
Administrator deems necessary to fulfill the tax obligations of the FRBNY Investor Education
Accounts, request that the SEC file with the Court a motion, supported by the Interim Tax
Administrator’s declaration of the amount of taxes due, to transfer funds from the FRBNY
Investor Education Accounts to pay any tax obligations of the Accounts.
4.The Interim Tax Administrator shall be entitled to charge reasonable fees for tax
compliance services and related expenses in accordance with its agreement with the SEC dated
February 25, 2005.  The Interim Tax Administrator shall, at such times as the Interim Tax
Administrator deems appropriate, submit a declaration of fees and expenses to the SEC for
submission to the Court for approval and for payment from the FRBNY Investor Education
Accounts.  No fees or expenses may be paid absent the Court’s prior approval.
5.At least ten (10) days before any motion to pay fees and expenses is filed with the

-17-
Court, the Interim Tax Administrator shall provide the SEC  with a draft of the supporting
declaration for review.  If the SEC staff has any corrections or objections to the declaration, the
Interim Tax Administrator and the SEC staff shall attempt to resolve them on a consensual basis. 
If a consensual resolution is not reached, the SEC may submit with the motion any objections
along with the Interim Tax Administrator’s response thereto.

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

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:

SECURITIES AND EXCHANGE COMMISSION, : Civil Action No.
:

Plaintiff, : 03 Civ. 2937 (WHP)
:

– against – :
: ORDER REGARDING

BEAR, STEARNS & CO. INC., : INVESTOR EDUCATION
: PLAN

Defendant. :
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:
SECURITIES AND EXCHANGE COMMISSION, :

: Civil Action No.
Plaintiff, :

: 03 Civ. 2938 (WHP)
– against – :

:
JACK BENJAMIN GRUBMAN, :

:
Defendant. :

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:
SECURITIES AND EXCHANGE COMMISSION, :

: Civil Action No.
Plaintiff, :

: 03 Civ. 2939 (WHP)
– against – :

:
J.P. MORGAN SECURITIES INC., :

:
Defendant. :

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- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
:

SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.

Plaintiff, :
: 03 Civ. 2940 (WHP)

– against – :
:

LEHMAN BROTHERS, INC., :
:

Defendant. :
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- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

:
SECURITIES AND EXCHANGE COMMISSION, :

: Civil Action No.
Plaintiff, :

: 03 Civ. 2941 (WHP)
– against – :

:
MERRILL LYNCH, PIERCE, FENNER & :
SMITH INCORPORATED, :

:
Defendant. :

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

:
SECURITIES AND EXCHANGE COMMISSION, :

: Civil Action No.
Plaintiff, :

: 03 Civ. 2942 (WHP)
– against – :

:
U.S. BANCORP PIPER JAFFRAY, INC., :

:
Defendant. :

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x



-3-

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
:

SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.

Plaintiff, :
: 03 Civ. 2943 (WHP)

– against – :
:

UBS WARBURG LLC, :
:

Defendant. :
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

:
SECURITIES AND EXCHANGE COMMISSION, :

: Civil Action No.
Plaintiff, :

: 03 Civ. 2944 (WHP)
– against – :

:
GOLDMAN, SACHS & CO., :

:
Defendant. :

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

:
SECURITIES AND EXCHANGE COMMISSION, :

: Civil Action No.
Plaintiff, :

: 03 Civ. 2945 (WHP)
– against – :

:
CITIGROUP GLOBAL MARKETS, INC., F/K/A :
SALOMON SMITH BARNEY INC., :

:
Defendant. :

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x



-4-

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
:

SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.

Plaintiff, :
: 03 Civ. 2946 (WHP)

– against – :
:

CREDIT SUISSE FIRST BOSTON LLC, :
F/K/A CREDIT SUISSE FIRST BOSTON :
CORPORATION, :

:
Defendant. :

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

:
SECURITIES AND EXCHANGE COMMISSION, :

: Civil Action No.
Plaintiff, :

: 03 Civ. 2947 (WHP)
– against – :

:
HENRY McKELVEY BLODGET, :

:
Defendant. :

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

:
SECURITIES AND EXCHANGE COMMISSION, :

: Civil Action No.
Plaintiff, :

: 03 Civ. 2948 (WHP)
– against – :

:
MORGAN STANLEY & CO. INCORPORATED, :

:
Defendant. :

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x



-5-

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
:

SECURITIES AND EXCHANGE COMMISSION, :
: Civil Action No.

Plaintiff, :
: 04 Civ. 6909 (WHP)

– against – :
:

DEUTSCHE BANK SECURITIES INC., :
:

Defendant. :
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

:
SECURITIES AND EXCHANGE COMMISSION, :

: Civil Action No.
Plaintiff, :

: 04 Civ. 6910 (WHP)
– against – :

:
THOMAS WEISEL PARTNERS LLC, :

:
Defendant. :

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

ORDER REGARDING INVESTOR EDUCATION PLAN

On October 31, 2003, this Court approved and entered the Final Judgments in these

related actions resolving the SEC’s complaints against ten major investment banks and two

individuals concerning equity research analyst practices in the late 1990s.  At that time, this

Court entered an Order Regarding Investor Education for each of the seven investment bank

defendants contributing investor education funds (“Investor Education Orders”).  Section B of

the Investor Education Orders required the SEC to propose an Investor Education Plan for the

Court’s consideration and approval.  The SEC submitted its plan on February 13, 2004.  The

Court approved that plan by Order dated March 25, 2004.

On September 24, 2004, this Court approved and entered a Final Judgment resolving the



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SEC’s complaint against Deutsche Bank concerning equity research analyst practices. That Final

Judgment required Deutsche Bank to contribute investor education funds pursuant to the plan

approved by the Court on March 25, 2004.

By application dated May 4, 2005, the SEC proposed a new investor education plan that

would dissolve the Investor Education entity (“Investor Education Entity”) established pursuant

to this Court’s March 25, 2004 Order, and fulfill the investor education objectives of the Final

Judgments by charting a different course.  In its May 4, 2005 plan, the SEC proposed

distributing the investor education funds on deposit at the Federal Reserve Bank of New York to

the NASD Investor Education Foundation (“NASD Foundation”).

On June 9, 2005, this Court conducted a hearing to consider the merits of the SEC’s new

investor education plan.  Prior to the hearing, this Court received submissions objecting to the

SEC’s proposal.  Having considered the SEC’s motion as well as the submissions of interested

parties and the presentations of counsel, this Court grants the SEC’s application on the following

terms.

This Order supersedes the Court’s Investor Education Orders dated October 31, 2003 and

modifies the Deutsche Bank Final Judgment dated September 24, 2004.  The Investor Education

Plan approved by the March 25, 2004 Order is rescinded.

A. Dissolution Of Investor Education Entity

1. The Investor Education Entity established pursuant to this Court’s March 25,

2004 Order is directed to take all necessary steps to wind down its affairs and terminate its

corporate existence.  

2. Within thirty days of entry of this Order, the Investor Education Entity shall file



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with the Court an application for payment of reasonable and necessary fees, costs, and expenses

incurred by the entity.  The application may include legal fees, costs and expenses associated

with the termination of the Investor Education Entity.  At least fifteen days before making such

application to the Court, the Investor Education Entity shall submit the application to the SEC,

and the SEC shall advise the Court whether it has any objection.  Upon approval of any such

application by the Court, the Court by an implementing order will authorize the payment of the

approved fees and expenses.

3. All notices, reports, and other information required to be submitted to the SEC

under this Order shall be sent to the attention of Susan F. Wyderko, SEC, Office of Investor

Education and Assistance, 100 F. Street, N.E., Washington, D.C., 20549.

4. The income tax reporting requirements relating to the investor education funds on

deposit at the Federal Reserve Bank of New York (“FRBNY Investor Education Accounts”)

shall be the responsibility of Damasco & Associates, which is appointed the Interim Tax

Administrator of the FRBNY Investor Education Accounts pursuant to the terms set forth in

Section F of this Order.  After the funds are transferred to the NASD Foundation, any tax

reporting requirements relating to any income earned on such funds shall be the sole

responsibility of the NASD Foundation for the period during which the NASD Foundation

administers the funds.

 5. Monies in the FRBNY Investor Education Accounts are intended to be “qualified

settlement funds” pursuant to Section 468B(g) of the Internal Revenue Code and regulations

thereunder.  Monies in the FRBNY Investor Education Accounts may be used to pay any taxes

on income earned by such accounts.  The expenses referred to in ¶ A.2 of this Order shall be



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obligations of and shall be paid from the qualified settlement funds and not the Investor

Education Entity.

    6. The resignations of the Investor Education Entity’s board members and officers

Charles D. Ellis, George G. Daly, Sheila C. Bair, Joseph L. Dionne, Carol J. Loomis, Lionel L.

Nowell, III, Rebecca W. Rimel, and Jay Vivian will be effective upon the receipt by the entity of

a Certificate of Dissolution issued by the State of Delaware.  Counsel for the entity shall provide

a copy of the Certificate of Dissolution to the Court and the SEC.

B. The Distribution Of The Investor Education Funds 

1. All of the funds in the FRBNY Investor Education Accounts and all future

investor education installment payments required of defendants Bear Stearns & Co., Inc.,

Citigroup Global Markets, Inc., f/k/a/ Salomon Smith Barney, Inc., Goldman, Sachs & Co., J.P.

Morgan Securities, Inc., Lehman Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith

Incorporated, UBS Warburg LLC, and Deutsche Bank Securities, Inc. (less the taxes and

approved fees, costs, and expenses described in ¶¶ A.2, A.4, and F.1-5 of this Order, and any

outstanding amount due for the administrative court registry fee as required under ¶ A.2 of the

Final Judgments), shall be distributed to the NASD Foundation by an implementing order of this

Court.  For the period during which the NASD Foundation administers these funds, the terms of

this Order shall apply to the NASD Foundation.  These funds, and any interest thereon, shall be

maintained by the NASD Foundation in a segregated account (the “NASD Foundation Investor

Education Account”) to be used exclusively to effectuate the purposes of this Order.  The funds

in the NASD Foundation Investor Education Account shall be invested in money market funds

or securities with maturities of less than six months and backed by the full faith and credit of the



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U.S. government.

2. The future investor education installment payments of the defendants identified in

¶ B.1 of this Order, required to be paid annually on or before the month and day of entry of the

Final Judgment in each case, shall be made directly to the NASD Foundation.  The NASD

Foundation shall provide these defendants with payment/wire instructions for deposit to the

segregated account referred to in ¶ B.1 (the NASD Foundation Investor Education Account), and

defendants shall provide the Court and the SEC with contemporaneous proof of the payments. 

The NASD Foundation shall keep account records sufficient to document whether each

defendant identified in ¶ B.1 of this Order has made timely and complete payments.

3. The NASD Foundation shall use the funds in the NASD Foundation Investor

Education Account to award grants pursuant to the guidelines of its grant program, appended for

reference as Exhibit A.  The funds in the NASD Foundation Investor Education Account shall be

utilized for new or expanded education initiatives.  The NASD Foundation Investor Education

Account is not intended to replace current NASD funding of the NASD Foundation.  At a

minimum, such NASD funding should continue in the same proportion as such funding bore to

the NASD’s overall 2004 budget during the period the NASD Foundation Investor Education

Account exists. 

  4. As applied to the grantees of grants awarded by the NASD Foundation from the

NASD Foundation Investor Education Account, such grants shall not be used:

(A) to benefit, directly or indirectly:

(1) beyond any payments authorized by the Court, any person involved in the

review or approval of applications for grants, and any entity that employs



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such a person;

(2) Defendants, their predecessors, successors, or their subsidiaries, affiliates,

present or former officers, directors, or their employees, or those in active

concert or participation with them, through subrogation or otherwise;

(3) any person who has been convicted of a crime substantially related to any

act or practice, or the types of acts or practices, identified in the

Complaints in the captioned actions;

(4) any person who has been enjoined by a court or sanctioned by the

Commission or any other regulatory authority for any act or practice, or

the types of acts or practices, identified in the Complaints in the captioned

actions; or

(5) any person named as a defendant in a pending federal criminal or civil

enforcement action for any act or practice, or the types of acts or practices,

identified in the Complaints in the captioned actions;

(B) to promote, directly or indirectly, the investment products or services of any

single firm or entity; provided, however, that monies from the NASD Foundation

Investor Education Account may be directed exclusively to the NASD Foundation

for use and disposition in accordance with this Order;

(C) for any unlawful or unethical purpose; or

(D) for any non-educational or non-research purpose.

  5. It is the intention of this Order that the funds in the NASD Foundation Investor

Education Account will not be used as a permanent endowment.  The NASD Foundation shall



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use its best efforts to distribute these funds in an expeditious manner, consistent at all times with

the terms of this Order, and by no later than ten years from the date of this Order; provided,

however, that the NASD Foundation shall have the right to seek the Court’s permission to

modify this deadline on notice to the SEC.

6. Members of the NASD Foundation Board of Directors will be selected by NASD,

subject to the relevant NASD Foundation By-Laws and the provisions of this Order.  The NASD

will consult with the SEC about proposed NASD Foundation Board appointments, and agrees to

appoint persons acceptable to the SEC.  The NASD Foundation By-Laws shall be amended to

require that at least a majority of the Board of Directors of the NASD Foundation shall consist of

members of the public who are not employed by a securities regulator and who have no material

business relationship with the securities industry, provided that a “material business

relationship” does not include an educational or research entity that is unaffiliated with the

securities industry.

7. The NASD Foundation may use a portion of the funds in the NASD Foundation

Investor Education Account to cover the reasonable and necessary expenses associated with

distributing grant awards from the funds in the NASD Foundation Investor Education Account

and complying with the terms of this Order.  

  8. The NASD Foundation shall provide the SEC with quarterly reports that describe

the use of funds in the NASD Foundation Investor Education Account in the preceding quarter

as well as NASD Foundation’s strategic plan for use of the funds in the upcoming quarter.  The

SEC shall file a copy of each NASD Foundation quarterly report with this Court.  Each report

shall, at a minimum, identify both approved and non-approved grant applications since the last



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quarterly report.  In each case, a report will identify the party seeking the grant, describe the

intended use of the grant, the grant amount, the project term, and the type of grant (education,

research, or combination education/research).  The report should detail all expenses incurred in

distributing grant awards from the NASD Foundation Investor Education Account.  Each report

shall also include an accounting of receipts and expenses in reasonable detail.  The NASD

Foundation shall also provide the SEC with an annual report setting forth the NASD

Foundation’s strategic plan for the upcoming year regarding the use of funds in the NASD

Foundation Investor Education Account; the fourth quarter report will be included in the annual

report.  The SEC shall file each NASD Foundation annual report with the Court.

9. An annual audit of the NASD Foundation shall be performed by an independent

third party.  The results of the audits will be provided to the SEC and the SEC will file them with

this Court.

10. In the event of a proposed dissolution of the NASD Foundation, the SEC shall file

an application with the Court setting forth a plan for the disposition of any remaining funds in

the NASD Foundation Investor Education Account.

C. Amendments To Final Judgment Against Merrill Lynch

1. The following paragraphs in Section C of this Order apply to the Final Judgment

entered against Merrill Lynch, Pierce, Fenner & Smith, Incorporated (“Merrill Lynch Final

Judgment”).

2. Section IV, Paragraph A.2 of the Merrill Lynch Final Judgment is amended to

delete the reference to an “Investor Education Fund,” as that term was defined as a depositary

account of the prior investor education entity.  Section IV, Paragraph A.2 of the Merrill Lynch



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Final Judgment is further amended to delete the last three sentences that require the deduction

from the investor education funds of an administrative court registry fee.

3. Section IV, Paragraph B.1 of the Merrill Lynch Final Judgment is amended to

delete the reference to an “Investor Education Fund.”

4. Section IV, Paragraph B.2 of the Merrill Lynch Final Judgment is amended to

delete the requirement that the investor education funds be used to help establish a new tax-

exempt, non-profit grant administration organization, and is further amended to delete references

to the term “Investor Education Fund.”

5. Section IV, Paragraph C of the Merrill Lynch Final Judgment is amended to

delete the references to an “Investor Education Fund.”

6. Section IV, Paragraph D of the Merrill Lynch Final Judgment is amended to

delete the references to an “Investor Education Fund.”

D. Amendments To Final Judgment Against Deutsche Bank

1. The following paragraphs in Section D of this Order apply to the Final Judgment

entered against Deutsche Bank Securities, Inc. (“Deutsche Bank Final Judgment”).

2. Section IX, Paragraphs A.1 and A.2 of the Deutsche Bank Final Judgment is

amended to delete the reference to an “Investor Education Fund,” as that term was defined in

Section IX, Paragraph A.2 as a depositary account of the prior investor education entity. 

3. Section IX, Paragraph A.2 of the Deutsche Bank Final Judgment is amended to

delete the last three sentences that require the deduction from the investor education funds of an

administrative court registry fee.

4. Section IX, Paragraph B.1 of the Deutsche Bank Final Judgment is amended to



-14-

delete the reference to an “Investor Education Fund.”

5. Section IX, Paragraph B.2 of the Deutsche Bank Final Judgment is amended to

delete the requirement that the investor education funds be used to help establish a new tax-

exempt, non-profit grant administration organization, and is further amended to delete references

to the term “Investor Education Fund.”

6. Paragraph C.1 of the Deutsche Bank Final Judgment, which mirrored a provision

of Investor Education Orders now superseded, is deleted.  The provision, as amended, is set forth

in this Order.

 7. Paragraph C.2 of the Deutsche Bank Final Judgment, which mirrored a provision

of Investor Education Orders now superseded,  is deleted.  The provision, as amended, is set

forth in this Order.

 8. Paragraph D of the Deutsche Bank Final Judgment is deleted.

9. Paragraphs E, F.1, F.2, and F.5 of the Deutsche Bank Final Judgment are deleted,

as these provisions applied to the creation and continued operation of a new investor education

entity.

10. Paragraphs F.3, F.4, F.6, F.7 and G of the Deutsche Bank Final Judgment, which

mirrored provisions of Investor Education Orders now superseded, are deleted.  The provisions,

as amended, are provided for in this Order.

E. Amendments To Final Judgments Against Other Defendants Required To Make
Investor Education Payments

1. The following paragraphs in Section E of this Order apply to the Final Judgments

entered against defendants Bear Stearns & Co., Inc., Citigroup Global Markets, Inc., f/k/a/

Salomon Smith Barney, Inc., Goldman, Sachs & Co., J.P. Morgan Securities, Inc., Lehman



-15-

Brothers, Inc., and UBS Warburg LLC.

2. Section IX, Paragraphs A.1 and A.2 of the Final Judgments are amended to delete

the reference to an “Investor Education Fund,” as that term was defined in Section IX, Paragraph

A.2 as a depositary account of the prior investor education entity. 

3. Section IX, Paragraph A.2 of the Final Judgments is amended to delete the last

three sentences that require the deduction from the investor education funds of an administrative

court registry fee.

4. Section IX, Paragraph B.1 of the Final Judgments is amended to delete the

reference to an “Investor Education Fund.”

5. Section IX, Paragraph B.2 of the Final Judgments is amended to delete the

requirement that the investor education funds be used to help establish a new tax-exempt, non-

profit grant administration organization, and is further amended to delete references to the term

“Investor Education Fund.”

6. Section IX, Paragraph C of the Final Judgments is amended to delete the

references to an “Investor Education Fund.”

7. Section IX, Paragraph D of the Final Judgments is amended to delete the

references to an “Investor Education Fund.”

F. Appointment Of Interim Tax Administrator

1. Damasco & Associates is appointed as Interim Tax Administrator to execute all

income tax reporting requirements, including the preparation and filing of tax returns, with

respect to funds in the FRBNY Investor Education Accounts.  Damasco & Associates will not

have tax administrator responsibilities for any income earned on these funds after they are



-16-

transferred to the NASD Foundation.

2. Damasco & Associates shall be designated the interim administrator of the

FRBNY Investor Education Fund Accounts, pursuant to section 468B(g) of the Internal Revenue

Code (IRC), 26 U.S.C. § 468B(g), and related regulations, and shall satisfy the administrative

requirements imposed by those regulations, including but not limited to (a) obtaining a taxpayer

identification number, (b) filing applicable federal, state, and local tax returns and paying taxes

reported thereon out of the Investor Education Fund Accounts, and (c) satisfying any

information, reporting, or withholding requirements imposed on distributions from the FRBNY

Investor Education Accounts.  The Interim Tax Administrator shall contemporaneously provide

copies of all such filings to the SEC.

3. The Interim Tax Administrator shall, at such times as the Interim Tax

Administrator deems necessary to fulfill the tax obligations of the FRBNY Investor Education

Accounts, request that the SEC file with the Court a motion, supported by the Interim Tax

Administrator’s declaration of the amount of taxes due, to transfer funds from the FRBNY

Investor Education Accounts to pay any tax obligations of the Accounts.

4. The Interim Tax Administrator shall be entitled to charge reasonable fees for tax

compliance services and related expenses in accordance with its agreement with the SEC dated

February 25, 2005.  The Interim Tax Administrator shall, at such times as the Interim Tax

Administrator deems appropriate, submit a declaration of fees and expenses to the SEC for

submission to the Court for approval and for payment from the FRBNY Investor Education

Accounts.  No fees or expenses may be paid absent the Court’s prior approval.

5. At least ten (10) days before any motion to pay fees and expenses is filed with the



-17-

Court, the Interim Tax Administrator shall provide the SEC  with a draft of the supporting

declaration for review.  If the SEC staff has any corrections or objections to the declaration, the

Interim Tax Administrator and the SEC staff shall attempt to resolve them on a consensual basis. 

If a consensual resolution is not reached, the SEC may submit with the motion any objections

along with the Interim Tax Administrator’s response thereto.Advance practice, policy, and thought in the fields of investor education and protection Types of Projects The Foundation seeks to fund projects that advance its mission through: * Educational projects or programs. Funding is for programs that respond to an unmet investor education or protection need for a target audience. * Research. Funding is for research that expands the body of knowledge and offers solutions in the field of investor education and protection. * Combination of research and educational program. Funding is for initiatives that lead with a research element and follow with a high-impact investor education or investor protection project based upon the results of the research. Types of Funding The Foundation provides for three types of funding: * Directed These grants are awarded to fund projects initiated by the Foundation in response to specific investor education or protection needs identified by the Foundation. In this case, the Foundation conceptualizes the project, and locates the groups or individuals whose knowledge and experience qualify them to pursue the project, and then provides the funding necessary to accomplish the project objective. Directed grants may be awarded at any time, as projects related to the Foundation's funding priorities are identified. * Requests for Proposals The Foundation issues requests for proposals that seek to address the Foundation's funding priorities. A request for proposals may identify a specific issue or target audience or may be general in nature. * Unsolicited Proposals These grants typically are awarded in response to unsolicited funding requests from eligible organizations for self-initiated projects that support the Foundation's mission. * Targeted Projects The Foundation may initiate educational projects or research in response to specific investor education or protection needs identified by the Foundation. In this case, the Foundation conceptualizes the project, and uses a combination of Foundation-managed programs and directed grants to reach a specific target audience or to address an unmet need in investor education. The Foundation provides the funding necessary to accomplish the project objective. Targeted projects may be initiated at any time, as unmet needs related to the Foundation's funding priorities are identified. All grant proposals and targeted projects are subject to evaluation by the Foundation's Board of Directors. A request to submit a grant proposal does not guarantee that a grant will be awarded. General Grant Criteria The Foundation seeks proposals that advance its mission and also: * Present a practical and detailed plan for distributing the project deliverables * Field test promising ideas and evaluate results or take proven ideas and approaches to scale * Involve strategic collaboration with partners, including those in the non-profit, public or for-profit sectors * Are sustainable once Foundation funding ends — can easily be expanded or replicated by other organizations * Use technology wherever possible to reduce the cost and increase availability * Expand or leverage programs or materials developed or supported by NASD, the Foundation, NEFE or the U.S. Securities and Exchange Commission * Present a project based on research attesting to the relevance of the intended deliverables * Address whether a behavioral change in the target audience is necessary for the project's success and, if so, how that change will be identified, achieved, and measured * Substantiate the ability to develop the project on time and within the requested budget The Foundation will generally not consider proposals to fund: * International programs or projects * Expenses that are not directly related to the project for which funding is sought * Salaries of permanent staff (for example, prorated salaries of administrative and executive personnel, or oversight and coordination activities of a project principal). (Note that modest amounts for release time of university professors are acceptable.) * Capital costs such as building and construction or equipment such as computer hardware and office furniture * Pass-through funding—for example, if the 501(c)(3) organization plans to turn over the funding to a proprietary organization or consultant * Projects with a potential conflict of interest (for example where funded technical support or expertise might be provided by a board member of the 501(c)(3) organization) * Conferences and similar activities that fail to provide a long-term solution or sufficiently broad outreach * Distribution methodologies that require ongoing maintenance when the ability to perform upkeep without continued funding is questionable. For example, materials with a short "shelf life" that would require ongoing funding for frequent updating * Projects with proprietary elements, such as for-profit activities, use or purchase of copyrighted or trademarked materials, and proprietary research * Lobbying, political contributions, fund-raising events, or other similar activities designed to influence legislation or intervene in political campaigns * Donations, endowments, challenge grants, matching funds, and other similar programs * Direct or matching payments to members of the public, such as scholarships, assistance with personal and family financial difficulties, registration fees for conferences and training, or similar activities Grant Amounts There is no set minimum or maximum grant amount. In considering grant requests, the merits of the proposed project are the primary focus.

Distribution of Grant Funds Award of funding is contingent upon successful negotiation of a grant agreement within a reasonable time. If a grantee and the Foundation cannot successfully negotiate a grant agreement within a reasonable time as determined by the Foundation, the funding will not be released. After a grant agreement is executed, funds will be awarded in installments contingent upon performance and actual expenses, not to exceed the grant amount.