SEC v. Lehman Brothers Inc., Southern District of New York (Apr. 28, 2003) — Judgment

UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT 
OF NEW YORK 
SECURITIES AND EXCHANGE COMMISSION, 
Plaintiff, Civil Action No. 
-against- 
03 Civ. 2940 (WHP) 
LEHMAN BROTHERS INC., 
Defendant. 
FINAL JUDGMENT AS TO DEFENDANT 
LEHMAN BROTHERS 
INC. 
Plaintiff  Securities and Exchange Commission (“Commission”) having filed a Complaint 
in this action (“Complaint”) and Defendant Lehman Brothers Inc. (“Defendant”) having 
(a) entered a general  appearance, (b) consented to the Court‘s jurisdiction over Defendant and 
the subject matter 
of this action, (c) consented to entry of this Final Judgment without admitting 
or denying the allegations 
of the Complaint (except as to jurisdiction), (d) waived findings of fact 
and conclusions of law, and (e) waived any right 
to appeal from this Final Jud-ment; and the 
Commission having agreed that, on the basis 
of this Final Judgment, it will not  institute a 
proceeding against Defendant pursuant to Sections 15(b), 15R, 15C, or 19(h) of the Securities 
Exchange Act 
of 1934 (the “Exchange Act”): 
I. 
Injunctive Relief 
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that: 
A.  Defendant,  Defendant’s  officers, agents, servants, employees, attorneys, and all 
persons in active concert 
or participation  with them who receive  actual notice of this Final 

Judgment by personal service or otherwise are permanently restrained  and enjoined from 
violating Rule 
21 10 of the Conduct Rules of NASD Inc. (“NASD”) and Rules 401 and 476 of the 
New York Stock Exchange, Inc. (“NYSE”), by: 
(1) engaging in acts or practices that create or 
maintain inappropriate influence by investment banking over research analysts and therefore 
impose conflicts of interest on research analysts, and by failing 
to manage these conflicts in an 
adequate or appropriate manner; 
(2) publishing  research reports that do not provide a sound basis 
for evaluating facts, are not properly balanced, and/or contain exaggerated or unwarranted claims 
and/or opinions for which there 
is no reasonable basis; (3) promising, implicitly or explicitly, 
favorable research coverage 
to investment banking clients or potential clients. 
B. Defendant, Defendant’s officers, agents, servants. employees, attorneys. and all 
persons in active concert or participation with them who receive actual notice 
of this Final 
Judgment by personal service or otherwise are permanently restrained and enjoined from 
violating NASD Rule 
22 10 and NYSE Rule 472 by issuing communications to the public that do 
not provide a sound basis  for evaluating facts, are not properly balanced, and/or contain 
exaggerated or unwarranted claims and/or opinions for which there is no reasonable basis. 
C. Defendant, Defendant’s officers, agents, servants, employees, attorneys, and all 
persons in active concert or participation with them who receive actual notice of this Final 
Judgment by personal service or otherwise are permanently restrained and enjoined from 
violating 
NASD Rule 30 10 and NYSE Rule 342 by failing to maintain appropriate supervisory 
procedures regarding or controls over the following that are reasonably designed 
to ensure 
compliance with securities 
laws and regulations: (1) influence by investment banking over 
research analysts; 
(2) compensation and evaluation of research analysts; (3) use of research or 
research analysts in connection with the solicitation or marketing of investment banking 
-2- 

business; (4) publication of research regarding a securities issuer with which Defendant has, has 
solicited, or is soliciting an investment banking relationship. 
11. 
Monetary Sanctions 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that: 
A. As a result of the violations alleged in the Complaint, Defendant shall pay a total 
amount of 
$80,000,000 (which amount includes the State Settlement Offer, as defined below, 
and is subject to the decision of any state securities regulator(s) not to accept the State Settlement 
Offer). This amount includes: 
1. $25,000,000, as a penalty; 
2.   $25,000,000, 
as disgorgement of commissions and other monies; 
3. $25,000,000, to be used for the procurement of Independent Research, as 
described in Section 
VIII below and the undertakings set forth in Addendum 
A hereto; and 
4. $5,000,000, to be used for investor education, as described in Section IX 
below. 
No portion of the payments  for Independent Research or investor education shall be considered 
disgorgement or restitution, and/or used for compensatory purposes. 
B. The amount of $50,000,000, which is the sum of the penalty of $25,000,000 and 
disgorgement of 
$25,000,000, consists of (1) $25,000,000 in connection with the resolution of 
this action and related proceedings instituted by NASD and NYSE (the “Federal Payment”); and 
(2) $25,000,000 that Defendant has offered to pay in connection with the resolution of related 
proceedings by state securities regulators (which, for these purposes, shall include the District 
of 
-3- 

Columbia and Puerto Rico) (Defendant’s offer to the state securities reglators hereinafter shall 
be called the “State Settlement Offer”). Defendant shall pay the Federal Payment of 
$25,000,000 by wire transfer into an interest bearing account with the Federal Reserve 
Bank of 
New York (“FRB-NY”), to be designated the ”Lehman Brothers Inc. Distribution  Fund 
Account” on the tenth business day after entry 
of this Final Judgment in accordance Ivith 
instructions to be provided 
to Defendant by the FRB-NY and authorized or ordered by the Court. 
Defendant shall simultaneously transmit proof 
of its payment to the Court, the Clerk of the 
Court, and the Commission’s counsel in this action. 
By making this payment, Defendant 
relinquishes all legal and equitable right, title. and interest in such funds, and no part 
of the funds 
shall be returned 
to Defendant. These funds, together with any interest and income earned 
thereon (collectively. the “Distribution Fund”). shall be held bq the FRR-NY until  fiirther order 
ofthe Court. 
In the event that any portion of the penalty described in Section II.A.l above is 
remitted for deposit into thc Distribution Fund, such penalty  amount shall 
be added to the 
Distribution Fund and distributed pursuant to the Fair Funds provisions 
in Section 30s of the 
Sarbanes-Oxley Act 
of 2002 and any further order of the Court; prowdeti, however, that the full 
penalty amount and such poi-tion shall still bi: considered a penalty for tax and 
any other 
purposes. Pending further order of the Court, in accordance with the letter dated  August 
26, 
2003 from the Director of the Administrative Office of the United States Courts to the 
Commission’s counsel in connection with this action, the court registry fund 
fec pursuant to 28 
U.S.C. 4 1914 for the Distribution Fund shall be four (4) percent ofthe income earned on the 
Distribution Fund. The Distribution Fund shall be managed in accordance with the terms of, and 
shall be distributed pursuant to, this Final Judgnent and any further applicable orders of the 
court. 
-4- 

C. Defendant’s obligation to make the Federal Payment is not contingent or dependent in 
any way 
or part on Defendant‘s payments to state securities regulators pursuant to the State 
Settlement Offer. The total amount to be paid by Defendant to state securities regulators 
pursuant to the State Settlement Offer (and the total amount 
of the sum of the penalties and 
disgorgement payable under Section 
1I.A) may be reduced due to the decision of any state 
securities regulator(s) not to accept the State Settlement  Offer. 
In the event a state securities 
regulator determines not to accept Defendant’s State Settlement Offer, the total amount of the 
Federal Payment shall not be affected, and shall remain at 
$25,000.000. The total amount of 
penalties paid 
(1) in the Federal Payment (“PF~~”) and (2) pursuant to that portion of the State 
Settlement Offer 
that is accepted b) the state securities regulators ( 
equal the total amount of disgorgeinent paid (3) in the Federal Payment (“DFed“) and (4) pursuant 
to that portion of the State Settlement Offer that 
1s accepted by state securities regulators 
(%,t31e,’‘). Insofar as .in> aniount paid  to the state securitics rcgulators  pursuant to the Stcite 
Settlement Offer 
IS deemed a penalty, the amount of the Federal  Payment that 1s decmed a 
penalty shall be adjusted so that PkCd + Pstates = Dked + Dflnre,. 
shall at all times 
111. 
lises of the Distribution Fund 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Distribution Fund 
is 
to be utilized as follows: 
A. 
To pay any taxes on income earned by the Distribution Fund. The Distribution Fund 
is intended to be a “qualified settlement fund” pursuant to Section 368B(g) of the Internal 
Revenue Code and regulations thereunder. The Distribution Fund Administrator appointed 
pursuant to Section 
1V.A below of this Final Judgment is designated the administrator of the 
-5- 

Distribution  Fund as defined in and for the purpose of Treas. Reg. 9 1.468B-2(k)(3)(i), and shall 
satisfy the administrative requirements  imposed by Treas. Reg. 
9 1.468B-2 by, e.g., (1) obtaining 
a taxpayer identification number; 
(2) timely filing applicable federal, state, and local tax returns 
and paying taxes reported thereon; and 
(3) satisfying any information reporting or withholding 
requirements imposed on distributions from the Distribution Fund.  Defendant shall provide the 
Distribution Fund Administrator with relevant information and otherwise cooperate with the 
Distribution Fund Administrator in fulfilling the Distribution Fund’s obligations under Treas. 
Reg. 
5 1.468B-2. 
B. To pay Eligible Distribution Fund Recipients as described in Section V of this Final 
Judgment. 
C. 
Restrictions on Use of the Distribution Fund.  The Distribution Fund shall not be used 
directly or indirectly 
to pay: 
1. Defendant, its predecessors,  successors, and their subsidiaries, affiliates, 
present or former officers, directors, and their employees, agents, assigns, members of their 
immediate households,  and those persons in active concert or participation with them, through 
subrogation 
or otherwise. 
2. With respect to any investment in its own securities, any issuer of securities as 
to which the Distribution Fund Administrator determines that an investment in such issuer’s 
securities would otherwise provide a basis for receipt 
of proceeds from the Distribution Fund 
and, with respect to such securities, such issuer’s (a) predecessors, successors, subsidiaries, and 
affiliates; (b) present or former officers and directors and their agents, assigns, and members of 
their immediate households; and 
(c) those persons in active concert or participation with them, 
through subrogation or otherwise. 
-6- 

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 Complaint. 
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 Complaint. 
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 
Complaint. 
6. Any judgment or award of punitive or non-compensatory damages. 
7. Any administrative fees, costs or expenses related to the Distribution Fund 
Plan described in this Final Judgment, other than the fee equal to four 
(4) percent of the income 
earned on the Distribution Fund as described in Section 
I1.B above. 
8. Any amount denominated as attorneys‘ fees. costs or disbursements. 
9. The Distribution Fund Administrator or any member of his immediate family. 
IV. 
Distribution Fund Administrator 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that: 
A. As soon as is practicable, the Court shall appoint a Distribution Fund Administrator, 
whom the Commission shall recommend.  Subject to the 
Court’s approval, there shall be a single 
Distribution Fund Administrator with respect to this action and the other actions that the 
Commission has brought against other broker-dealer 
firms relating to, among other things, 
alleged research analyst conflicts of interest and that are identified in Addendum 
B attached 
hereto (the “Related Actions”).  However, the Distribution Fund in this action shall be separate 
-7- 

from the Distribution Funds established in those other actions.  The Commission may request 
that additional actions that it brings against other broker-dealer 
firms or individuals relating to, 
among other things, alleged research conflicts of interest be added to the list of Related Actions. 
B. Payment of Distribution Fund Administrator. Defendant shall pay all fees, costs, and 
expenses incurred by the Distribution  Fund Administrator and approved by the Court in 
connection with and incidental 
to the performance of his duties under this Final Judgment and 
any further applicable orders of the Court, including the fees, costs, and expenses of any persons 
engaged to assist him and all administrative fees, costs, and expenses related to the Distribution 
Fund Plan described below. If the Court approves a single Distribution Fund Administrator for 
all the Related Actions, Defendant shall pay its proportional share 
of the payments to the 
Distribution Fund Administrator approved by the Court for all the Related Actions, such 
proportional share being the fraction equal to the amount deposited into this Distribution Fund by 
Defendant divided by the total amount deposited into all Distribution Funds established in 
connection with the Related Actions. 
C. 
Responsibilities, Powers and Riqhts of the Distribution Fund Administrator. The 
Distribution Fund Administrator shall: 
1. administer the Distribution Fund Plan described below in accordance with and 
subject to the conditions and limitations imposed by the terms of this Final Judgment and any 
further applicable orders of the Court; 
2. distribute monies from the Distribution Fund to Eligible Distribution Fund 
Recipients, as approved by the Court; 
3. file tax returns on behalf of the Distribution Fund; 
-8- 

4. submit written quarterly reports to the Court and the Commission staff 
commencing three months after his appointment by the Court; in such periodic reports, the 
Distribution Fund Administrator shall provide detailed information on the progress of the 
implementation of the Distribution  Fund Plan described below, fees and expenses incurred, and 
other matters relevant to the status of the Distribution Fund; 
5. submit on a quarterly basis requests to the Court, with copies to the 
Commission staff and Defendant, for payment by Defendant of his fees and expenses (including 
the fees and expenses 
of others retained by him as authorized by this Final Judgment) incurred 
during the quarterly period; the Commission and Defendant shall have the opportunity to 
comment 
on the Distribution Fund Administrator's requests within thirty (30) days after receipt 
thereof, and the Court shall, after taking into consideration  the Commission's and Defendant's 
comments, order the amount that Defendant is to pay the Distribution Fund Administrator for the 
quarterly period and, 
if appropriate, the disposition of such amount by the Distribution Fund 
Administrator; Defendant shall pay such amount within thirty 
(30) days of the Court's order 
setting such amount; and 
6. have all appropriate powers and authority to perform his duties as set forth in 
the Final Judgment including, without limitation, the following powers: 
(a) to retain and engage such personnel as he deems necessary, including, 
without limitation, legal counsel, relevant experts, and other personnel to assist in the preparation 
or administration of the Distribution Fund Plan; and 
(b) to delegate 
to such persons such duties as he deems appropriate. 
D. The Distribution Fund Administrator, his agents, attorneys, and all persons acting on 
his behalf shall be held harmless  against liabilities, claims, and demands, whether civil, 
-9- 

administrative, or investigative, arising from or relating to any act or omission to act in the 
course of performing his duties, except and to the extent that it is found that such person acted 
criminally, or in bad faith, or with 
gross negligence, or with reckless disregard of his duties, or in 
a manner that he knew was contrary to the terms of this Final Judgrnent or any further applicable 
order of the Court. 
E. The Court may remove the Distribution Fund Administrator SZ~U spnte or, for good 
cause shown, upon application of the Commission. if the Distribution Fund Administrator 
decides to resign, he shall first give sixty 
(60) days written notice to the Commission and the 
Court 
of his intention.  Such resignation shall not become effective until the Court has appointed 
a successor. 
If the Distribution Fund Administrator is removed by the Court. becomes 
incapacitated due to illness or death, is otherwise unable to serve. or resigns. the Court shall 
appoint a successor recommended by the Commission. 
F. The Distribution Fund Administrator is entitled 
to rely on all rules of lau. and court 
orders, and shall 
not be liable to anyone for his own good Caith compliance with any order, rulc, 
law, judgment, or decree.  Nor shall he be liable 
by virtue of his compliance lvith the orders of 
this Court. In no event shall he be liable to Defendant for his good faith compliance nith his 
duties and responsibilities under this Final Judgment. 
G. The Distribution Fund Administrator shall not enter into any employment, consulting, 
or attorney-client relationship with Defendant or any of its present 
or fornier parents, 
subsidiaries, directors, officers, employees, or agents acting in their capacity 
as such for the 
period of the engagement and for 
a period of three years from the completion of his engagement. 
Any 
firm with which the Distribution Fund Administrator  is affiliated or of which he is a 
member and any person engaged to assist the Distribution Fund Administrator 
in the 
- 10- 

performance of his duties under this Final Judgment or any further applicable order of the Court 
shall not, without the Commission’s prior written consent.  enter into any employment. 
consulting, or other professional relationship with Defendant or any of its present or former 
directors, officers, employees, or agents in their capacity as such for the period 
of the 
engagement and  for three years after the completion of the engagement. 
LT. 
Distribution Furd Plan 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that: 
A. The Distribution Fund Administrator shall formulate and administer a Distribution 
Fund Plan in accordance Ivith Sections 
V.B - V.G below. The Distribution Fund Plan is 
intended to prolvide for the equitable, cost-effective distribution of funds to Eligible Distribution 
Fund Recipients, as described below. An Eligible Distribution  Fund Recipient 
is not precluded 
from pursuing. to the extent otherwise available, any other reniedv or recourse against 
Defendant. 
B. The Distribution Fund Administrator shall formulate a Distribution Fund Plan  that,  to 
the extent practicable. allocates  funds to persons who purchased equity securities of companies 
referenced in the Complaint.  The Distribution Fund  Plan need not provide that funds be 
allocated 
(i) with respect to purchases of equity securities of each company identified in the 
Complaint or 
(ii) to all purchasers of equity securities of a company identified in the Complaint. 
The Distribution Fund Plan also may recognize that purchasers 
of equity securities of companies 
referenced in connection with one kind (or some kinds) of conduct by Defendant  should receive 
all 
of the Distribution  Fund available for distribution to Eligible Distribution Fund Recipients or 
a greater proportion than should purchasers of equity securities 
of companies referenced in 
- 11 - 

connection with another kind (or other kinds) of conduct by Defendant. The Distribution  Fund 
Administrator shall formulate a Distribution Fund Plan that attempts to ensure an equitable (but 
not necessarily equal) distribution 
of funds and that those who are allocated funds receive 
meaningful payments from the Distribution Fund. 
C. In formulating the Distribution Fund Plan, the Distribution Fund Administrator shall 
apply the following criteria to identify Eligible Distribution Fund Recipients: 
1. The person must have purchased the “equity securities in question” through 
Defendant during the “relevant period of purchase.” Identification of the “equity securities in 
question” and the “relevant period of purchase”  for each such equity security will be set forth 
(solely for the purpose of administering the Distribution Fund Plan) in 
a further order of the 
court. 
2. The person must have suffered a net loss on his equity securities purchases in 
question. 
D. In formulating the Distribution Fund Plan, the Distribution Fund Administrator may 
also consider the following criteria in identifying Eligible Distribution Fund Recipients: 
1. whether the person was a retail or institutional customer; and 
2. the proximity in time between the person’s purchase of a company’s equity 
securities and Defendant’s publication of the research in question regarding the company 
(as a 
threshold matter, however, the purchase must have been made after the publication or receipt of 
such research; assuming that threshold has been met, in general, the shorter the time period, the 
more likely the person suffered a loss 
as a result of conduct alleged in the Complaint). 
E. If 
it is not practicable to formulate a Distribution Fund Plan that allocates funds to 
persons 
who purchased “equity securities in question” during the “relevant period of purchase” 
- 12 - 

as described above, or if it is practicable to allocate only some of the funds in the Distribution 
Fund to such persons, the Distribution Fund Administrator  shall apply alternative or additional 
criteria, 
as the case may be, or other considerations in formulating a Distribution  Fund Plan. 
Such alternative or additional criteria or other considerations shall be set forth in a further order 
or orders 
of the Court. 
F.   If monies remain in the Distribution Fund after all distributions pursuant 
to a 
Distribution Fund Plan described in Sections 
V.B-V.E above have been made, then such 
remaining monies shall be paid in accordance with 
a plan of residual distribution to be proposed 
by the Distribution Fund Administrator after consultation with Commission staff and, in his sole 
discretion, Defendant, and approved by the Court. If a residual plan of distribution  is necessary, 
the criteria that the Distribution Fund Administrator shall apply in formulating such 
a plan will 
be set forth in a further order or orders of the Court. 
G. As soon as is practicable,  and after any consultation with experts that the Distribution 
Fund Administrator believes is necessary or appropriate, but in no event more than six 
(6) 
months after being appointed by the Court, the Distribution Fund Administrator will provide the 
Commission staff and, in his sole discretion, Defendant for review and comment a Distribution 
Fund Plan, which shall, among other things, describe a process for 
(1) identifying and 
categorizing Eligible Distribution Fund Recipients in accordance with the considerations 
described above; 
(2) determining the amount of the Distribution Fund that each Eligible 
Distribution Fund Recipient shall receive; and 
(3) distributing the Distribution Fund to Eligible 
Distribution Fund Recipients. Sixty 
(60) days after the Distribution Fund Plan has been 
submitted to the Commission staff, the Distribution Fund Administrator  shall present the Plan, 
with any revisions that the Distribution  Fund Administrator deems appropriate, to the Court for 
- 13 - 

its approval. In accordance with the Court's Order approving the Distribution  Fund Plan, the 
Distribution Fund Administrator shall implement the Plan.  Upon the completion of the process 
of identifying the Eligible Distribution Fund Recipients and determining the amount that each 
should receive, but in no event later than nine 
(9) months from the Court's approval of the 
Distribution  Fund Plan, the Distribution Fund Administrator  shall submit a Distribution Fund 
Report to the Commission staff and, in his sole discretion, Defendant. The Distribution Fund 
Report shall set forth 
(1) the identities of the Eligible Distribution  Fund Recipients; (2) the 
amount of the Distribution Fund that each Eligible Distribution Fund Recipient shall receive; and 
(3) procedures for distributing the Distribution Fund to Eligible Distribution Fund Recipients. 
Seven 
(7) days after submission of the Distribution Fund Report to the Commission staff, the 
Distribution Fund Administrator shall present the Report to the Court for 
its approval. The 
Distribution  Fund Administrator andor the Commission may apply to the Court for extension of 
any deadlines set forth above, in the Distribution Fund Plan, or in the Distribution Fund Report, 
and the Court may grant any such application for good cause shown. 
VI. 
Stay of Proceedings Apainst the Distribution Fund 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, for the purposes of 
implementing and effectuating the Final Judgment, and upon a finding hereby made that a stay of 
any proceedings against the Distribution Fund Administrator in his official capacity and the 
Distribution  Fund during the pendency or the existence of the Distribution Fund is necessary to 
effectuate the Final Judgment, all creditors or claimants of Defendant, and other persons acting 
on behalf of such creditors, claimants, or other persons, including sheriffs, marshals, other 
officers, deputies, servants, agents, employees, and attorneys, be and the same hereby are 
- 14- 

restrained and enjoined during the pendency or the existence of the Distribution  Fund from: (1) 
commencing, prosecuting, continuing, or enforcing any suit or proceeding against the 
Distribution Fund Administrator  in his official capacity or the Distribution Fund; 
(2) using self- 
help or executing or issuing or causing the execution or issuance of any court attachment, 
subpoena, replevin, execution, or other process for the purpose of impounding or taking 
possession of or interfering with or creating or enforcing a lien upon any monies or property, 
wheresoever situated, deposited or 
to be transferred into the Distribution Fund or the Distribution 
Fund Administrator pursuant to this Final Judgment; andor 
(3) doing any act or thing 
whatsoever 
to interfere with the taking control, possession, or management by the Distribution 
Fund Administrator of the monies or property that are or may be transferred to the Distribution 
Fund, or in any way to interfere with or harass said Distribution Fund Administrator, or to 
interfere in any manner with the exclusive jurisdiction of this Court over the Distribution Fund. 
VII. 
Duties and Obligations of Defendant 
to the Distribution Fund Administrator 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, in addition to any 
other duties and obligations described in this Final Judgment: 
A. Defendant shall upon request provide the following non-privileged documents, 
records, and information 
to the Distribution Fund Administrator: (1) research reports issued by 
Defendant during the relevant period identified in the Complaint; and 
(2) documents. records, 
and information relating to customers’ equity securities transactions with or through Defendant, 
including but not limited 
to account statements, order tickets, confirniations, and related 
documents, records and information.  Defendant shall 
also provide the Distribution Fund 
Administrator with such other documents, records, and information that the Court may order 
-15- 

Defendant to provide upon motion by the Distribution Fund Administrator.  Defendant  shall 
cooperate in arranging for interviews 
of Defendant's  employees to explain to the Distribution 
Fund Administrator and otherwise assist the Distribution Fund Administrator in understanding 
such documents, records, and information and the distribution of such reports. In addition, 
Defendant shall provide such other cooperation that the 
Court may order upon motion by the 
Distribution Fund Administrator. In performing his duties pursuant to this Final Judgnent, the 
Distribution Fund Administrator shall not make any determination whether any conduct by 
Defendant violated federal 
or state securities laws or NASD or NYSE rules or conduct any 
inquiry 
for the purpose of making any such determination. 
B. Defendant shall take such actions as the Distribution Fund Administrator  may requirc 
(including, but not limited to, providing any notices to any of Defendant's  present 
or former 
customers that the Distribution Fund Administrator deems appropriate) to ensure proper 
implementation of the Distribution 
Fund Plan. 
C. Defendant shall indemnify, defend, and hold harmless the Distribution Fund 
Administrator, his agents, and his attorneys from an3 against liabilities. claims, and demands. 
whether 
civil, administrative, or investigative, judgments, fines. aiid amounts paid in settlement, 
and costs and expenses (including attoineys' fees), arising from or relating to any act 
or omission 
to act in the course of performing his duties, except and to the extent that the Court finds 
that 
such person acted criminally, or in bad faith, or with gross negligence, or with reckless disregard 
of his duties, or in a manner that he knew was contrary to the terms of this Final Judgment or any 
further applicable order of the Court. 
- 16- 

v111. 
Financial Obligation Regarding Independent Research 
A.  As referenced in Section II.A.3 above, Defendant shall pay a total of $25,000,000 for 
its Independent Consultant to procure Independent  Research from the Independent  Research 
Providers over the five-year period set forth in Section 111.1 of Addendum 
A hereto. This 
amount 
is not contingent or dependent in any way or part  upon acceptance by any state securities 
regulator(s) of the State Settlement Offer. As used hsrein, the terms “Independent Consultant,” 
“Independent  Research,” and “Independent Research Providers” shall have the meanings set 
forth in Addendum A hereto. Defendant will not be required to spend more 
than the amount set 
forth in this Section 
V1II.A 111 order to procure Independent  Research  and will have no obligation 
to procure additional  Independent  Research if the Independent Consultant 
has spent the entire 
amount of Defendant‘s financial obligation with regard to Independent  Research. Any money 
that 
is not spent after the  five-year period set forth in Section 111.1 of Addendum A hereto u 111 
not be retained by Defendant and will  be paid one-half to NASD and ow-half to NYSE for use 
in their regulation and enforcement programs. 
B. Defendant  shall also escroM $1,250,000 within thirty (30) days after cntry of this 
Final Judgment to cover the fees and costs of the Independent  Consultant. This obligation 
is not 
contingent or dependent in any way or part upon acceptance by any state securities regulator(s) 
of the State settlement Offer. In the event that such escrowed  amount exceeds the 
fees and costs 
of the Independent Consultant, the excess will be returned to Defendant at the conclusion of the 
five-year period set forth in Section 111.1 of Addendum 
A hereto. 
- 17- 

IX. 
Investor Education 
A. Payments to the Investor Education Fund. 
1. As referenced in Section II.A.4 above, Defendant shall pay a total amount of 
$5,000,000 to be used for investor education.  Defendant shall pay this amount in five equal 
installments on an annual basis.  Of this amount, $2,500,000 represents the amount Defendant 
has offered to pay for investor education in five equal annual installments pursuant to the State 
Settlement Offer.  Defendant shall pay the remaining amount of $2,500,000 in five equal annual 
installment payments pursuant to the terms of this Final Judgment and further applicable orders 
of the Court (the “Federal Investor Education Payments”).  Defendant’s obligation to make the 
Federal Investor Education Payments is not contingent or dependent in any way or part 
on 
Defendant’s investor education payments pursuant to the State Settlement Offer. The amount of 
Defendant’s investor education payments pursuant to the State Settlement Offer 
(and the total 
amount of 
$5,000,000 payable for investor education under Section 1I.A) may be reduced due to 
the decision of any state securities regulator(s) not to accept the State Settlement Offer. 
In the 
event 
a state securities regulator determines not to accept Defendant’s State Settlement Offer, the 
total amount of Defendant’s Federal Investor Education Payments shall not be affected, and shall 
remain at $2,500,000 to be paid  in five equal installments on an annual basis. 
2. Defendant shall make the first such installment payment on the ninetieth (90th) 
day after the entry of this Final Judgment by the Court.  This payment shall be made by wire 
transfer into an interest bearing account with the FRB-NY, to be designated the “Lehman 
Brothers Inc. Investor Education Fund Account” in accordance with instructions to be provided 
to Defendant by the 
FRB-NY and authorized or ordered by the Court.  Defendant  shall 
- 18 - 

simultaneously transmit proof of its payment to the Court, the Clerk of the Court, and the 
Commission’s counsel in this action.  By making this payment, Defendant relinquishes 
all legal 
and equitable right, title, and interest 
in such funds, and no part of the funds shall be returned to 
Defendant. Any interest and income earned on funds in such Investor Education Fund Account 
shall be added to and become part of such Account. The Investor Education Fund Account shall 
be held by the FRB-NY until further order of the Court.  At any time after the entry of this 
Judgment, the Court may order that any and all funds in the Lehman Brothers Inc. Investor 
Education Fund Account be transferred from the Fm-NY to such depositary account, 
to be 
known as the “Investor Education Fund,” 
as the Court may direct. Pending further order of the 
Court, a fee not more than ten 
(10) percent of the income earned on the Investor Education Fund 
Account shall be deducted from such Account as the court registry  fee pursuant to 
28 U.S.C. 5 
1914. Such fee shall not exceed that authorized by the Judicial Conference of the United States. 
The Investor Education Fund Account shall be administered in accordance with the terms of the 
Investor Education Plan to be approved by this Court as provided for in this Final Judgment and 
any further applicable orders of the Court. 
3. Defendant shall make subsequent installment payments annually on or before 
the month and day of the entry of this Final Judgment.  Such payments shall be made to such 
account by such means 
as are specified in a further order of this Court. 
B. Purpose and Use of the Investor Education Fund Account. 
1. The Lehman Brothers Inc. Investor Education Fund Account and the Investor 
Education Fund (including all installment payments)  shall be used to support programs designed 
to equip investors with the knowledge and skills necessary to make infornied investment 
- 19 - 

decisions, according to the terms of this Final Judgment, the Investor Education Plan referred to 
below, and any further applicable orders 
of the Court. 
2. The Lehman Brothers Inc. Investor Education Fund Account and the Investor 
Education Fund shall be used to help establish a tax-exempt, non-profit grant administration 
organization (the “Investor Education Entity”) to fund worthy and cost-efficient programs 
designed to equip investors with the knowledge and skills necessary to make informed 
investment decisions.  Subject to the 
Court’s approval, there shall be a single Investor Education 
Entity and a single Investor Education Fund with respect to this action and the Related Actions. 
Pending further order of the Court, the Investor Education Fund Account in this action shall be 
separate from the Investor Education Fund Accounts established in the Related Actions. 
C. Stay of Proceedings.  For the purposes of implementing and effectuating this Final 
Judgment, and upon a finding hereby made that a stay of any proceedings  against the Lehman 
Brothers Inc. Investor Education Fund Account, the Investor Education Fund, and the Investor 
Education Entity during the pendency or the existence of such Fund Account, Fund, and Entity is 
necessary to effectuate this Final Judgment, all creditors or claimants of Defendant, and other 
persons acting on behalf of such creditors, claimants, or other persons, including sheriffs, 
marshals, other officers, deputies, servants, agents, employees, and attorneys, be and the 
same 
hereby are restrained and enjoined during the pendency or the existence of the Lehman Brothers 
Inc. Investor Education Fund Account, the Investor Education Fund, and the Investor Education 
Entity from: 
(1) commencing, prosecuting,  continuing, or enforcing any suit or proceeding 
against such Account, Fund, or Entity; 
(2) using self-help or executing or issuing or causing the 
execution or issuance of any court attachment, subpoena, replevin, execution, or other process 
for the purpose of impounding or taking possession of or interfering with or creating or enforcing 
- 20 - 

a lien upon any monies or property, wheresoever situated, owned by or in the possession of or to 
be transferred to such Account, Fund, or Entity pursuant to this Final Judgment; and/or 
(3) doing 
any act or thing whatsoever to interfere in 
any manner with the exclusive jurisdiction of this 
Court over the Lehman Brothers Inc. Investor Education Fund Account, the Investor Education 
Fund, or the Investor Education Entity. 
D.  Further Order 
of the Court. Specific provisions concerning restrictions  and 
limitations on use of the Lehman Brothers Inc. Investor Education Fund Account and the 
Investor Education Fund, payment 
of taxes on interest earned by such Account  and Fund, the 
structure and operations of the Investor Education  Entity, an Investor Education Plan, and other 
matters relating to this Section of this Judgment will be set forth in a further order of the Court. 
x. 
Standing 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, notwithstanding any 
rule or provision of law, nothing herein, including in the Addenda hereto, shall be deemed to 
confer standing or right 
of intervention upon any persons other than the Commission, Defendant, 
and the Distribution  Fund Administrator. 
XI. 
Record Retention and Non-Destruction  Requirement 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that,  for a period of five 
years from the effective date of this Final Judgment or such shorter or longer period 
as the Court 
may order, Defendant, 
its officers, directors, agents, affiliates, servants, employees, attorneys, 
and those persons in active concert or participation with them, and each of them, are hereby 
enjoined from destroying, mutilating, concealing, altering, or disposing of (a) any research 
-21 - 

distributed by Defendant during the relevant period identified in the Complaint: (b) documents 
sufficient to identify all customers who bought or sold equity securities of the issuers as to which 
Defendant issued research during the relevant period  identified in the Complaint (the 
“Transactions”), including but not limited to documents sufficient to identi6 the dates. amounts, 
and prices 
of the Transactions; (c) documents sufficient to identify which customers received 
which research distributed by Defendant during the relevant period identified in the Complaint; 
(d) order entry information  sufficient to identify whether the Transactions were solicited by 
Defendant; (e) documents sufficient to identify the publicly-traded companies for which 
Defendant sought to provide, was engaged to provide, 
or did provide investment banking 
services during the relevant period identified in the Complaint; and 
(0 any and all written 
(including electronic) communication, including communications to and from customers and 
intra-firm communications, relating 
to Defendant’s investment banking and equity research 
operations during the relevant period identified in the Complaint; 
proi?idcrf, Izouww. that 
Defendant need not retain duplicate identical copies of public docunients filed with 
thc 
Commission or any other regulatory authority. 
XII. 
Defendant’s Consent Incorporated 
by Reference 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Defendant’s  Consent 
previously filed in this action is incorporated herein with the same force and effect as if fully set 
forth herein, and Defendant  shall comply with all of the undertakings and agreements set forth 
therein. 
- 22 - 

XIII. 
Attached Undertakings Incorporated bv Reference 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Defenunt sha 
comply with the undertakings set forth in Addendum A hereto. Such undertakings and 
Addendum A are incorporated  herein with the same force 
and effect as if fully set forth herein. 
XIV. 
Definition of Defendant 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that with respect to all 
injunctive relief and all future obligations, responsibilities, undertakings, commitments, 
limitations,  restriction$. ekents. and conditions.  the teiins "Defendant" 
and "Defendant's" as 
used herein  shall include Defendant's  successors and assigns (which, for these purposes.  shall 
include a successor or assign to Defendant's  investment banking 
and research operations, and in 
the case of 
an affiliate of Defendant, a successor or assign to Defendant's invcstnient btinking or 
research operations). 
xv. 
Court to Retain Jurisdiction 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that this Court shall retain 
jurisdiction  of this matter for the purposes of enforcing the terms of this Final Judgment. 
- 23 - 

XVI. 
Entry of Judgment Forthwith 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, there being no just 
cause for delay, the Clerk 
of the Court shall enter this Judgment forthwith and without further 
notice. 
Dated:  New York, New York 
a >l ,2003 
h S\l Q& tY4 
WILLTAM H. PAULEY 111 
UNITED STATES DISTRICT JUDGE 
- 24 - 

UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 

SECURITIES AND EXCHANGE COMMISSION, 

Plaintiff, Civil Action No. 

-against- 03 Civ. 2940 (WHP) 

LEHMAN BROTHERS INC., 

Defendant. 

FINAL JUDGMENT AS TO DEFENDANT 
LEHMAN BROTHERS INC. 

Plaintiff Securities and Exchange Commission (“Commission”) having filed a Complaint 

in this action (“Complaint”) and Defendant Lehman Brothers Inc. (“Defendant”) having 

(a) entered a general appearance, (b) consented to the Court‘s jurisdiction over Defendant and 

the subject matter of this action, (c) consented to entry of this Final Judgment without admitting 

or denying the allegations of the Complaint (except as to jurisdiction), (d) waived findings of fact 

and conclusions of law, and (e) waived any right to appeal from this Final Jud-ment; and the 

Commission having agreed that, on the basis of this Final Judgment, it will not institute a 

proceeding against Defendant pursuant to Sections 15(b), 15R, 15C, or 19(h) of the Securities 

Exchange Act of 1934 (the “Exchange Act”): 

I. 

Injunctive Relief 

IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that: 

A. Defendant, Defendant’s officers, agents, servants, employees, attorneys, and all 

persons in active concert or participation with them who receive actual notice of this Final 



Judgment by personal service or otherwise are permanently restrained and enjoined from 

violating Rule 21 10 of the Conduct Rules of NASD Inc. (“NASD”) and Rules 401 and 476 of the 

New York Stock Exchange, Inc. (“NYSE”), by: (1) engaging in acts or practices that create or 

maintain inappropriate influence by investment banking over research analysts and therefore 

impose conflicts of interest on research analysts, and by failing to manage these conflicts in an 

adequate or appropriate manner; (2) publishing research reports that do not provide a sound basis 

for evaluating facts, are not properly balanced, and/or contain exaggerated or unwarranted claims 

and/or opinions for which there is no reasonable basis; (3) promising, implicitly or explicitly, 

favorable research coverage to investment banking clients or potential clients. 

B. Defendant, Defendant’s officers, agents, servants. employees, attorneys. and all 

persons in active concert or participation with them who receive actual notice of this Final 

Judgment by personal service or otherwise are permanently restrained and enjoined from 

violating NASD Rule 22 10 and NYSE Rule 472 by issuing communications to the public that do 

not provide a sound basis for evaluating facts, are not properly balanced, and/or contain 

exaggerated or unwarranted claims and/or opinions for which there is no reasonable basis. 

C. Defendant, Defendant’s officers, agents, servants, employees, attorneys, and all 

persons in active concert or participation with them who receive actual notice of this Final 

Judgment by personal service or otherwise are permanently restrained and enjoined from 

violating NASD Rule 30 10 and NYSE Rule 342 by failing to maintain appropriate supervisory 

procedures regarding or controls over the following that are reasonably designed to ensure 

compliance with securities laws and regulations: (1) influence by investment banking over 

research analysts; (2) compensation and evaluation of research analysts; (3) use of research or 

research analysts in connection with the solicitation or marketing of investment banking 

- 2 -  



business; (4) publication of research regarding a securities issuer with which Defendant has, has 

solicited, or is soliciting an investment banking relationship. 

11. 

Monetary Sanctions 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that: 

A. As a result of the violations alleged in the Complaint, Defendant shall pay a total 

amount of $80,000,000 (which amount includes the State Settlement Offer, as defined below, 

and is subject to the decision of any state securities regulator(s) not to accept the State Settlement 

Offer). This amount includes: 

1. $25,000,000, as a penalty; 

2. $25,000,000, as disgorgement of commissions and other monies; 

3. $25,000,000, to be used for the procurement of Independent Research, as 

described in Section VIII below and the undertakings set forth in Addendum 

A hereto; and 

4. $5,000,000, to be used for investor education, as described in Section IX 

below. 

No portion of the payments for Independent Research or investor education shall be considered 

disgorgement or restitution, and/or used for compensatory purposes. 

B. The amount of $50,000,000, which is the sum of the penalty of $25,000,000 and 

disgorgement of $25,000,000, consists of (1) $25,000,000 in connection with the resolution of 

this action and related proceedings instituted by NASD and NYSE (the “Federal Payment”); and 

(2) $25,000,000 that Defendant has offered to pay in connection with the resolution of related 

proceedings by state securities regulators (which, for these purposes, shall include the District of 

- 3 -  



Columbia and Puerto Rico) (Defendant’s offer to the state securities reglators hereinafter shall 

be called the “State Settlement Offer”). Defendant shall pay the Federal Payment of 

$25,000,000 by wire transfer into an interest bearing account with the Federal Reserve Bank of 

New York (“FRB-NY”), to be designated the ”Lehman Brothers Inc. Distribution Fund 

Account” on the tenth business day after entry of this Final Judgment in accordance Ivith 

instructions to be provided to Defendant by the FRB-NY and authorized or ordered by the Court. 

Defendant shall simultaneously transmit proof of its payment to the Court, the Clerk of the 

Court, and the Commission’s counsel in this action. By making this payment, Defendant 

relinquishes all legal and equitable right, title. and interest in such funds, and no part of the funds 

shall be returned to Defendant. These funds, together with any interest and income earned 

thereon (collectively. the “Distribution Fund”). shall be held bq the FRR-NY until fiirther order 

ofthe Court. In the event that any portion of the penalty described in Section II.A.l above is 

remitted for deposit into thc Distribution Fund, such penalty amount shall be added to the 

Distribution Fund and distributed pursuant to the Fair Funds provisions i n  Section 30s of  the 

Sarbanes-Oxley Act of 2002 and any further order of the Court; prowdeti, however, that the full 

penalty amount and such poi-tion shall still bi: considered a penalty for tax and any other 

purposes. Pending further order of the Court, in accordance with the letter dated August 26, 

2003 from the Director of the Administrative Office of the United States Courts to the 

Commission’s counsel in connection with this action, the court registry fund fec pursuant to 28 

U.S.C. 4 1914 for the Distribution Fund shall be four (4) percent ofthe income earned on the 

Distribution Fund. The Distribution Fund shall be managed in accordance with the terms of, and 

shall be distributed pursuant to, this Final Judgnent and any further applicable orders of the 

court. 

- 4 -  



C. Defendant’s obligation to make the Federal Payment is not contingent or dependent in 

any way or part on Defendant‘s payments to state securities regulators pursuant to the State 

Settlement Offer. The total amount to be paid by Defendant to state securities regulators 

pursuant to the State Settlement Offer (and the total amount of the sum of the penalties and 

disgorgement payable under Section 1I.A) may be reduced due to the decision of any state 

securities regulator(s) not to accept the State Settlement Offer. In the event a state securities 

regulator determines not to accept Defendant’s State Settlement Offer, the total amount of the 

Federal Payment shall not be affected, and shall remain at $25,000.000. The total amount of 

penalties paid (1) in the Federal Payment ( “ P F ~ ~ ” )  and (2 )  pursuant to that portion of the State 

Settlement Offer that is accepted b) the state securities regulators ( 

equal the total amount of disgorgeinent paid (3) in the Federal Payment (“DFed“) and (4) pursuant 

to that portion of the State Settlement Offer that 1s accepted by state securities regulators 

(%,t31e,’‘). Insofar a s  .in> aniount paid to the state securitics rcgulators pursuant to the Stcite 

Settlement Offer IS deemed a penalty, the amount of the Federal Payment that 1s decmed a 

penalty shall be adjusted so that P k C d  + Pstates = D k e d  + Dflnre,. 

shall at all times 

111. 

lises of the Distribution Fund 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Distribution Fund 

is to be utilized as follows: 

A. To pay any taxes on income earned by the Distribution Fund. The Distribution Fund 

is intended to be a “qualified settlement fund” pursuant to Section 368B(g) of the Internal 

Revenue Code and regulations thereunder. The Distribution Fund Administrator appointed 

pursuant to Section 1V.A below of this Final Judgment is designated the administrator of the 

- 5 -  



Distribution Fund as defined in and for the purpose of Treas. Reg. 9 1.468B-2(k)(3)(i), and shall 

satisfy the administrative requirements imposed by Treas. Reg. 9 1.468B-2 by, e.g., (1) obtaining 

a taxpayer identification number; (2) timely filing applicable federal, state, and local tax returns 

and paying taxes reported thereon; and (3) satisfying any information reporting or withholding 

requirements imposed on distributions from the Distribution Fund. Defendant shall provide the 

Distribution Fund Administrator with relevant information and otherwise cooperate with the 

Distribution Fund Administrator in fulfilling the Distribution Fund’s obligations under Treas. 

Reg. 5 1.468B-2. 

B. To pay Eligible Distribution Fund Recipients as described in Section V of this Final 

Judgment. 

C. Restrictions on Use of the Distribution Fund. The Distribution Fund shall not be used 

directly or indirectly to pay: 

1. Defendant, its predecessors, successors, and their subsidiaries, affiliates, 

present or former officers, directors, and their employees, agents, assigns, members of their 

immediate households, and those persons in active concert or participation with them, through 

subrogation or otherwise. 

2. With respect to any investment in its own securities, any issuer of securities as 

to which the Distribution Fund Administrator determines that an investment in such issuer’s 

securities would otherwise provide a basis for receipt of proceeds from the Distribution Fund 

and, with respect to such securities, such issuer’s (a) predecessors, successors, subsidiaries, and 

affiliates; (b) present or former officers and directors and their agents, assigns, and members of 

their immediate households; and ( c )  those persons in active concert or participation with them, 

through subrogation or otherwise. 

- 6 -  



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 Complaint. 

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 Complaint. 

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 

Complaint. 

6. Any judgment or award of punitive or non-compensatory damages. 

7. Any administrative fees, costs or expenses related to the Distribution Fund 

Plan described in this Final Judgment, other than the fee equal to four (4) percent of the income 

earned on the Distribution Fund as described in Section I1.B above. 

8.  Any amount denominated as attorneys‘ fees. costs or disbursements. 

9. The Distribution Fund Administrator or any member of his immediate family. 

IV. 

Distribution Fund Administrator 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that: 

A. As soon as is practicable, the Court shall appoint a Distribution Fund Administrator, 

whom the Commission shall recommend. Subject to the Court’s approval, there shall be a single 

Distribution Fund Administrator with respect to this action and the other actions that the 

Commission has brought against other broker-dealer firms relating to, among other things, 

alleged research analyst conflicts of interest and that are identified in Addendum B attached 

hereto (the “Related Actions”). However, the Distribution Fund in this action shall be separate 

- 7 -  



from the Distribution Funds established in those other actions. The Commission may request 

that additional actions that it brings against other broker-dealer firms or individuals relating to, 

among other things, alleged research conflicts of interest be added to the list of Related Actions. 

B. Payment of Distribution Fund Administrator. Defendant shall pay all fees, costs, and 

expenses incurred by the Distribution Fund Administrator and approved by the Court in 

connection with and incidental to the performance of his duties under this Final Judgment and 

any further applicable orders of the Court, including the fees, costs, and expenses of any persons 

engaged to assist him and all administrative fees, costs, and expenses related to the Distribution 

Fund Plan described below. If the Court approves a single Distribution Fund Administrator for 

all the Related Actions, Defendant shall pay its proportional share of the payments to the 

Distribution Fund Administrator approved by the Court for all the Related Actions, such 

proportional share being the fraction equal to the amount deposited into this Distribution Fund by 

Defendant divided by the total amount deposited into all Distribution Funds established in 

connection with the Related Actions. 

C. Responsibilities, Powers and Riqhts of the Distribution Fund Administrator. The 

Distribution Fund Administrator shall: 

1. administer the Distribution Fund Plan described below in accordance with and 

subject to the conditions and limitations imposed by the terms of this Final Judgment and any 

further applicable orders of the Court; 

2. distribute monies from the Distribution Fund to Eligible Distribution Fund 

Recipients, as approved by the Court; 

3 .  file tax returns on behalf of the Distribution Fund; 

- 8 -  



4. submit written quarterly reports to the Court and the Commission staff 

commencing three months after his appointment by the Court; in such periodic reports, the 

Distribution Fund Administrator shall provide detailed information on the progress of the 

implementation of the Distribution Fund Plan described below, fees and expenses incurred, and 

other matters relevant to the status of the Distribution Fund; 

5. submit on a quarterly basis requests to the Court, with copies to the 

Commission staff and Defendant, for payment by Defendant of his fees and expenses (including 

the fees and expenses of others retained by him as authorized by this Final Judgment) incurred 

during the quarterly period; the Commission and Defendant shall have the opportunity to 

comment on the Distribution Fund Administrator's requests within thirty (30) days after receipt 

thereof, and the Court shall, after taking into consideration the Commission's and Defendant's 

comments, order the amount that Defendant is to pay the Distribution Fund Administrator for the 

quarterly period and, i f  appropriate, the disposition of such amount by the Distribution Fund 

Administrator; Defendant shall pay such amount within thirty (30) days of the Court's order 

setting such amount; and 

6. have all appropriate powers and authority to perform his duties as set forth in 

the Final Judgment including, without limitation, the following powers: 

(a) to retain and engage such personnel as he deems necessary, including, 

without limitation, legal counsel, relevant experts, and other personnel to assist in the preparation 

or administration of the Distribution Fund Plan; and 

(b) to delegate to such persons such duties as he deems appropriate. 

D. The Distribution Fund Administrator, his agents, attorneys, and all persons acting on 

his behalf shall be held harmless against liabilities, claims, and demands, whether civil, 

- 9 -  



administrative, or investigative, arising from or relating to any act or omission to act in the 

course of performing his duties, except and to the extent that it is found that such person acted 

criminally, or in bad faith, or with gross negligence, or with reckless disregard of his duties, or in 

a manner that he knew was contrary to the terms of this Final Judgrnent or any further applicable 

order of the Court. 

E. The Court may remove the Distribution Fund Administrator S Z ~ U  s p n t e  or, for good 

cause shown, upon application of the Commission. if the Distribution Fund Administrator 

decides to resign, he shall first give sixty (60) days written notice to the Commission and the 

Court of his intention. Such resignation shall not become effective until the Court has appointed 

a successor. If the Distribution Fund Administrator is removed by the Court. becomes 

incapacitated due to illness or death, is otherwise unable to serve. or resigns. the Court shall 

appoint a successor recommended by the Commission. 

F. The Distribution Fund Administrator is entitled to rely on all rules of lau. and court 

orders, and shall not be liable to anyone for his own good Caith compliance with any order, rulc, 

law, judgment, or decree. Nor shall he be liable by virtue of his compliance lvith the orders of 

this Court. In no event shall he be liable to Defendant for his good faith compliance n i t h  his 

duties and responsibilities under this Final Judgment. 

G. The Distribution Fund Administrator shall not enter into any employment, consulting, 

or attorney-client relationship with Defendant or any of its present or fornier parents, 

subsidiaries, directors, officers, employees, or agents acting in their capacity as such for the 

period of the engagement and for a period of three years from the completion of his engagement. 

Any firm with which the Distribution Fund Administrator is affiliated or of which he is a 

member and any person engaged to assist the Distribution Fund Administrator in the 

- 10-  



performance of his duties under this Final Judgment or any further applicable order of the Court 

shall not, without the Commission’s prior written consent. enter into any employment. 

consulting, or other professional relationship with Defendant or any of its present or former 

directors, officers, employees, or agents in their capacity as such for the period of the 

engagement and for three years after the completion of the engagement. 

LT. 

Distribution Furd Plan 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that: 

A. The Distribution Fund Administrator shall formulate and administer a Distribution 

Fund Plan in accordance Ivith Sections V.B - V.G below. The Distribution Fund Plan is 

intended to prolvide for the equitable, cost-effective distribution of funds to Eligible Distribution 

Fund Recipients, as described below. An Eligible Distribution Fund Recipient is not precluded 

from pursuing. to the extent otherwise available, any other reniedv or recourse against 

Defendant. 

B. The Distribution Fund Administrator shall formulate a Distribution Fund Plan that, to 

the extent practicable. allocates funds to persons who purchased equity securities of companies 

referenced in the Complaint. The Distribution Fund Plan need not provide that funds be 

allocated ( i )  with respect to purchases of equity securities of each company identified in the 

Complaint or (ii) to all purchasers of equity securities of a company identified i n  the Complaint. 

The Distribution Fund Plan also may recognize that purchasers of equity securities of companies 

referenced in connection with one kind (or some kinds) of conduct by Defendant should receive 

all of the Distribution Fund available for distribution to Eligible Distribution Fund Recipients or 

a greater proportion than should purchasers of equity securities of companies referenced in 

- 11 - 



connection with another kind (or other kinds) of conduct by Defendant. The Distribution Fund 

Administrator shall formulate a Distribution Fund Plan that attempts to ensure an equitable (but 

not necessarily equal) distribution of funds and that those who are allocated funds receive 

meaningful payments from the Distribution Fund. 

C. In formulating the Distribution Fund Plan, the Distribution Fund Administrator shall 

apply the following criteria to identify Eligible Distribution Fund Recipients: 

1 .  The person must have purchased the “equity securities in question” through 

Defendant during the “relevant period of purchase.” Identification of the “equity securities in 

question” and the “relevant period of purchase” for each such equity security will be set forth 

(solely for the purpose of administering the Distribution Fund Plan) in a further order of the 

court. 

2. The person must have suffered a net loss on his equity securities purchases in 

question. 

D. In formulating the Distribution Fund Plan, the Distribution Fund Administrator may 

also consider the following criteria in identifying Eligible Distribution Fund Recipients: 

1 .  whether the person was a retail or institutional customer; and 

2. the proximity in time between the person’s purchase of a company’s equity 

securities and Defendant’s publication of the research in question regarding the company (as a 

threshold matter, however, the purchase must have been made after the publication or receipt of 

such research; assuming that threshold has been met, in general, the shorter the time period, the 

more likely the person suffered a loss as a result of conduct alleged in the Complaint). 

E. If it is not practicable to formulate a Distribution Fund Plan that allocates funds to 

persons who purchased “equity securities in question” during the “relevant period of purchase” 

- 12 - 



as described above, or if it is practicable to allocate only some of the funds in the Distribution 

Fund to such persons, the Distribution Fund Administrator shall apply alternative or additional 

criteria, as the case may be, or other considerations in formulating a Distribution Fund Plan. 

Such alternative or additional criteria or other considerations shall be set forth in a further order 

or orders of the Court. 

F. If monies remain in the Distribution Fund after all distributions pursuant to a 

Distribution Fund Plan described in Sections V.B-V.E above have been made, then such 

remaining monies shall be paid in accordance with a plan of residual distribution to be proposed 

by the Distribution Fund Administrator after consultation with Commission staff and, in his sole 

discretion, Defendant, and approved by the Court. If a residual plan of distribution is necessary, 

the criteria that the Distribution Fund Administrator shall apply in formulating such a plan will 

be set forth in a further order or orders of the Court. 

G. As soon as is practicable, and after any consultation with experts that the Distribution 

Fund Administrator believes is necessary or appropriate, but in no event more than six (6) 

months after being appointed by the Court, the Distribution Fund Administrator will provide the 

Commission staff and, in his sole discretion, Defendant for review and comment a Distribution 

Fund Plan, which shall, among other things, describe a process for (1) identifying and 

categorizing Eligible Distribution Fund Recipients in accordance with the considerations 

described above; (2) determining the amount of the Distribution Fund that each Eligible 

Distribution Fund Recipient shall receive; and (3) distributing the Distribution Fund to Eligible 

Distribution Fund Recipients. Sixty (60) days after the Distribution Fund Plan has been 

submitted to the Commission staff, the Distribution Fund Administrator shall present the Plan, 

with any revisions that the Distribution Fund Administrator deems appropriate, to the Court for 

- 13 - 



its approval. In accordance with the Court's Order approving the Distribution Fund Plan, the 

Distribution Fund Administrator shall implement the Plan. Upon the completion of the process 

of identifying the Eligible Distribution Fund Recipients and determining the amount that each 

should receive, but in no event later than nine (9) months from the Court's approval of the 

Distribution Fund Plan, the Distribution Fund Administrator shall submit a Distribution Fund 

Report to the Commission staff and, in his sole discretion, Defendant. The Distribution Fund 

Report shall set forth (1) the identities of the Eligible Distribution Fund Recipients; (2) the 

amount of the Distribution Fund that each Eligible Distribution Fund Recipient shall receive; and 

( 3 )  procedures for distributing the Distribution Fund to Eligible Distribution Fund Recipients. 

Seven (7) days after submission of the Distribution Fund Report to the Commission staff, the 

Distribution Fund Administrator shall present the Report to the Court for its approval. The 

Distribution Fund Administrator andor the Commission may apply to the Court for extension of 

any deadlines set forth above, in the Distribution Fund Plan, or in the Distribution Fund Report, 

and the Court may grant any such application for good cause shown. 

VI. 

Stay of Proceedings Apainst the Distribution Fund 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, for the purposes of 

implementing and effectuating the Final Judgment, and upon a finding hereby made that a stay of 

any proceedings against the Distribution Fund Administrator in his official capacity and the 

Distribution Fund during the pendency or the existence of the Distribution Fund is necessary to 

effectuate the Final Judgment, all creditors or claimants of Defendant, and other persons acting 

on behalf of such creditors, claimants, or other persons, including sheriffs, marshals, other 

officers, deputies, servants, agents, employees, and attorneys, be and the same hereby are 

- 14-  



restrained and enjoined during the pendency or the existence of the Distribution Fund from: (1) 

commencing, prosecuting, continuing, or enforcing any suit or proceeding against the 

Distribution Fund Administrator in his official capacity or the Distribution Fund; (2) using self- 

help or executing or issuing or causing the execution or issuance of any court attachment, 

subpoena, replevin, execution, or other process for the purpose of impounding or taking 

possession of or interfering with or creating or enforcing a lien upon any monies or property, 

wheresoever situated, deposited or to be transferred into the Distribution Fund or the Distribution 

Fund Administrator pursuant to this Final Judgment; andor (3) doing any act or thing 

whatsoever to interfere with the taking control, possession, or management by the Distribution 

Fund Administrator of the monies or property that are or may be transferred to the Distribution 

Fund, or in any way to interfere with or harass said Distribution Fund Administrator, or to 

interfere in any manner with the exclusive jurisdiction of this Court over the Distribution Fund. 

VII. 

Duties and Obligations of Defendant 
to the Distribution Fund Administrator 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, in addition to any 

other duties and obligations described in this Final Judgment: 

A. Defendant shall upon request provide the following non-privileged documents, 

records, and information to the Distribution Fund Administrator: (1) research reports issued by 

Defendant during the relevant period identified in the Complaint; and (2) documents. records, 

and information relating to customers’ equity securities transactions with or through Defendant, 

including but not limited to account statements, order tickets, confirniations, and related 

documents, records and information. Defendant shall also provide the Distribution Fund 

Administrator with such other documents, records, and information that the Court may order 

- 1 5 -  



Defendant to provide upon motion by the Distribution Fund Administrator. Defendant shall 

cooperate in arranging for interviews of Defendant's employees to explain to the Distribution 

Fund Administrator and otherwise assist the Distribution Fund Administrator in understanding 

such documents, records, and information and the distribution of such reports. In addition, 

Defendant shall provide such other cooperation that the Court may order upon motion by the 

Distribution Fund Administrator. In performing his duties pursuant to this Final Judgnent, the 

Distribution Fund Administrator shall not make any determination whether any conduct by 

Defendant violated federal or state securities laws or NASD or NYSE rules or conduct any 

inquiry for the purpose of making any such determination. 

B. Defendant shall take such actions as the Distribution Fund Administrator may requirc 

(including, but not limited to, providing any notices to any of Defendant's present or former 

customers that the Distribution Fund Administrator deems appropriate) to ensure proper 

implementation of the Distribution Fund Plan. 

C. Defendant shall indemnify, defend, and hold harmless the Distribution Fund 

Administrator, his agents, and his attorneys from an3 against liabilities. claims, and demands. 

whether civil, administrative, or investigative, judgments, fines. aiid amounts paid i n  settlement, 

and costs and expenses (including attoineys' fees), arising from or relating to any act or omission 

to act in the course of performing his duties, except and to the extent that the Court finds that 

such person acted criminally, or in bad faith, or with gross negligence, or with reckless disregard 

of his duties, or in a manner that he knew was contrary to the terms of this Final Judgment or any 

further applicable order of the Court. 

- 16- 



v111. 

Financial Obligation Regarding Independent Research 

A. As referenced in Section II.A.3 above, Defendant shall pay a total of $25,000,000 for 

its Independent Consultant to procure Independent Research from the Independent Research 

Providers over the five-year period set forth in Section 111.1 of Addendum A hereto. This 

amount is not contingent or dependent in any way or part upon acceptance by any state securities 

regulator(s) of the State Settlement Offer. As used hsrein, the terms “Independent Consultant,” 

“Independent Research,” and “Independent Research Providers” shall have the meanings set 

forth in Addendum A hereto. Defendant will not be required to spend more than the amount set 

forth in this Section V1II.A 111 order to procure Independent Research and will have no obligation 

to procure additional Independent Research if the Independent Consultant has spent the entire 

amount of Defendant‘s financial obligation with regard to Independent Research. Any money 

that is not spent after the five-year period set forth in Section 111.1 of Addendum A hereto u 111 

not be retained by Defendant and will be paid one-half to NASD and ow-half to NYSE for use 

in their regulation and enforcement programs. 

B. Defendant shall also escroM $1,250,000 within thirty (30) days after cntry of this 

Final Judgment to cover the fees and costs of the Independent Consultant. This obligation is not 

contingent or dependent in any way or part upon acceptance by any state securities regulator(s) 

of the State settlement Offer. In the event that such escrowed amount exceeds the fees and costs 

of the Independent Consultant, the excess will be returned to Defendant at the conclusion of the 

five-year period set forth in Section 111.1 of Addendum A hereto. 

- 1 7 -  



IX. 

Investor Education 

A. Payments to the Investor Education Fund. 

1. As referenced in Section II.A.4 above, Defendant shall pay a total amount of 

$5,000,000 to be used for investor education. Defendant shall pay this amount in five equal 

installments on an annual basis. Of this amount, $2,500,000 represents the amount Defendant 

has offered to pay for investor education in five equal annual installments pursuant to the State 

Settlement Offer. Defendant shall pay the remaining amount of $2,500,000 in five equal annual 

installment payments pursuant to the terms of this Final Judgment and further applicable orders 

of the Court (the “Federal Investor Education Payments”). Defendant’s obligation to make the 

Federal Investor Education Payments is not contingent or dependent in any way or part on 

Defendant’s investor education payments pursuant to the State Settlement Offer. The amount of 

Defendant’s investor education payments pursuant to the State Settlement Offer (and the total 

amount of $5,000,000 payable for investor education under Section 1I.A) may be reduced due to 

the decision of any state securities regulator(s) not to accept the State Settlement Offer. I n  the 

event a state securities regulator determines not to accept Defendant’s State Settlement Offer, the 

total amount of Defendant’s Federal Investor Education Payments shall not be affected, and shall 

remain at $2,500,000 to be paid in five equal installments on an annual basis. 

2. Defendant shall make the first such installment payment on the ninetieth (90th) 

day after the entry of this Final Judgment by the Court. This payment shall be made by wire 

transfer into an interest bearing account with the FRB-NY, to be designated the “Lehman 

Brothers Inc. Investor Education Fund Account” in accordance with instructions to be provided 

to Defendant by the FRB-NY and authorized or ordered by the Court. Defendant shall 

- 18 - 



simultaneously transmit proof of its payment to the Court, the Clerk of the Court, and the 

Commission’s counsel in this action. By making this payment, Defendant relinquishes all legal 

and equitable right, title, and interest in such funds, and no part of the funds shall be returned to 

Defendant. Any interest and income earned on funds in such Investor Education Fund Account 

shall be added to and become part of such Account. The Investor Education Fund Account shall 

be held by the FRB-NY until further order of the Court. At any time after the entry of this 

Judgment, the Court may order that any and all funds in the Lehman Brothers Inc. Investor 

Education Fund Account be transferred from the F m - N Y  to such depositary account, to be 

known as the “Investor Education Fund,” as the Court may direct. Pending further order of the 

Court, a fee not more than ten (10) percent of the income earned on the Investor Education Fund 

Account shall be deducted from such Account as the court registry fee pursuant to 28 U.S.C. 5 

1914. Such fee shall not exceed that authorized by the Judicial Conference of the United States. 

The Investor Education Fund Account shall be administered in accordance with the terms of the 

Investor Education Plan to be approved by this Court as provided for in this Final Judgment and 

any further applicable orders of the Court. 

3. Defendant shall make subsequent installment payments annually on or before 

the month and day of the entry of this Final Judgment. Such payments shall be made to such 

account by such means as are specified in a further order of this Court. 

B. Purpose and Use of the Investor Education Fund Account. 

1. The Lehman Brothers Inc. Investor Education Fund Account and the Investor 

Education Fund (including all installment payments) shall be used to support programs designed 

to equip investors with the knowledge and skills necessary to make infornied investment 

- 19 - 



decisions, according to the terms of this Final Judgment, the Investor Education Plan referred to 

below, and any further applicable orders of the Court. 

2. The Lehman Brothers Inc. Investor Education Fund Account and the Investor 

Education Fund shall be used to help establish a tax-exempt, non-profit grant administration 

organization (the “Investor Education Entity”) to fund worthy and cost-efficient programs 

designed to equip investors with the knowledge and skills necessary to make informed 

investment decisions. Subject to the Court’s approval, there shall be a single Investor Education 

Entity and a single Investor Education Fund with respect to this action and the Related Actions. 

Pending further order of the Court, the Investor Education Fund Account in this action shall be 

separate from the Investor Education Fund Accounts established in the Related Actions. 

C. Stay of Proceedings. For the purposes of implementing and effectuating this Final 

Judgment, and upon a finding hereby made that a stay of any proceedings against the Lehman 

Brothers Inc. Investor Education Fund Account, the Investor Education Fund, and the Investor 

Education Entity during the pendency or the existence of such Fund Account, Fund, and Entity is 

necessary to effectuate this Final Judgment, all creditors or claimants of Defendant, and other 

persons acting on behalf of such creditors, claimants, or other persons, including sheriffs, 

marshals, other officers, deputies, servants, agents, employees, and attorneys, be and the same 

hereby are restrained and enjoined during the pendency or the existence of the Lehman Brothers 

Inc. Investor Education Fund Account, the Investor Education Fund, and the Investor Education 

Entity from: ( 1 )  commencing, prosecuting, continuing, or enforcing any suit or proceeding 

against such Account, Fund, or Entity; (2) using self-help or executing or issuing or causing the 

execution or issuance of any court attachment, subpoena, replevin, execution, or other process 

for the purpose of impounding or taking possession of or interfering with or creating or enforcing 

- 20 -a lien upon any monies or property, wheresoever situated, owned by or in the possession of or to 

be transferred to such Account, Fund, or Entity pursuant to this Final Judgment; and/or (3) doing 

any act or thing whatsoever to interfere in any manner with the exclusive jurisdiction of this 

Court over the Lehman Brothers Inc. Investor Education Fund Account, the Investor Education 

Fund, or the Investor Education Entity. 

D. Further Order of the Court. Specific provisions concerning restrictions and 

limitations on use of the Lehman Brothers Inc. Investor Education Fund Account and the 

Investor Education Fund, payment of taxes on interest earned by such Account and Fund, the 

structure and operations of the Investor Education Entity, an Investor Education Plan, and other 

matters relating to this Section of this Judgment will be set forth in a further order of the Court. 

x. 
Standing 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, notwithstanding any 

rule or provision of law, nothing herein, including in the Addenda hereto, shall be deemed to 

confer standing or right of intervention upon any persons other than the Commission, Defendant, 

and the Distribution Fund Administrator. 

XI. 

Record Retention and Non-Destruction Requirement 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, for a period of five 

years from the effective date of this Final Judgment or such shorter or longer period as the Court 

may order, Defendant, its officers, directors, agents, affiliates, servants, employees, attorneys, 

and those persons in active concert or participation with them, and each of them, are hereby 

enjoined from destroying, mutilating, concealing, altering, or disposing of (a) any research 

-21 - 



distributed by Defendant during the relevant period identified in the Complaint: (b) documents 

sufficient to identify all customers who bought or sold equity securities of the issuers as to which 

Defendant issued research during the relevant period identified in the Complaint (the 

“Transactions”), including but not limited to documents sufficient to identi6 the dates. amounts, 

and prices of the Transactions; (c) documents sufficient to identify which customers received 

which research distributed by Defendant during the relevant period identified in the Complaint; 

(d) order entry information sufficient to identify whether the Transactions were solicited by 

Defendant; (e) documents sufficient to identify the publicly-traded companies for which 

Defendant sought to provide, was engaged to provide, or did provide investment banking 

services during the relevant period identified in the Complaint; and (0 any and all written 

(including electronic) communication, including communications to and from customers and 

intra-firm communications, relating to Defendant’s investment banking and equity research 

operations during the relevant period identified in the Complaint; proi?idcrf, Izouww. that 

Defendant need not retain duplicate identical copies of public docunients filed with thc 

Commission or any other regulatory authority. 

XII. 

Defendant’s Consent Incorporated by Reference 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Defendant’s Consent 

previously filed in this action is incorporated herein with the same force and effect as if fully set 

forth herein, and Defendant shall comply with all of the undertakings and agreements set forth 

therein. 

- 22 - 



XIII. 

Attached Undertakings Incorporated bv Reference 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Defenunt sha 

comply with the undertakings set forth in Addendum A hereto. Such undertakings and 

Addendum A are incorporated herein with the same force and effect as if fully set forth herein. 

XIV. 

Definition of Defendant 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that with respect to all 

injunctive relief and all future obligations, responsibilities, undertakings, commitments, 

limitations, restriction$. ekents. and conditions. the teiins "Defendant" and "Defendant's" as 

used herein shall include Defendant's successors and assigns (which, for these purposes. shall 

include a successor or assign to Defendant's investment banking and research operations, and in 

the case of an affiliate of Defendant, a successor or assign to Defendant's invcstnient btinking or 

research operations). 

xv. 
Court to Retain Jurisdiction 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that this Court shall retain 

jurisdiction of this matter for the purposes of enforcing the terms of this Final Judgment. 

- 23 - 



XVI. 

Entry of Judgment Forthwith 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, there being no just 

cause for delay, the Clerk of the Court shall enter this Judgment forthwith and without further 

notice. 

Dated: New York, New York a > l  ,2003 
h S \ l  Q& tY4 

WILLTAM H. PAULEY 111 
UNITED STATES DISTRICT JUDGE 

- 24 -