SEC v. U.S. BANCORP PIPER JAFFRAY INC., District of Columbia (Apr. 28, 2003) — Judgment

UNITED STATES DISTRICT COURT 
SOUTHERN DISTFUCT OF NEW 
YOFW 
SECURITIES AND EXCHANGE COMMISSION, 
Plaintiff, Civil Action 
No. 
-against- 
03 Civ. 2942 (WHP) 
U.S. BANCORP PIPER JAFFRAY INC., 
Defendant. 
FINAL JUDGMENT AS TO DEFENDANT 
U.S. BANCORP PIPER JAFFRAY INC. 
Plaintiff Securities and Exchange Commission (“Commission”) having filed a Complaint 
in this action (“Complaint”) and Defendant 
U.S. Bancorp Piper Jaffray 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 
Judgment; 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), 15B, 15C, or  19(h) of 
the Securities Exchange Act of 
1934 (the “Exchange Act”): 
I. 
In iunctive Relief 
1T 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 Section 
17(b) of the Securities Act of 1933 (“Securities Act”) [ 15 U.S.C. 9 77q(b)], by 
the use of any means or instruments of transportation or communication in interstate commerce 
or by use of the mails, to publish, give publicity to, or circulate any notice, circular, 
advertisement, newspaper, article, letter, investment service, or communication which, though 
not purporting to offer a security for sale, describes such security for a consideration received or 
to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully 
disclosing the receipt, whether past 
or prospective, of such consideration and the amount thereof. 
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 Rule 
2 1 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; (4) failing to 
disclose 
or cause to be disclosed in  offering documents or elsewhere the use of proceeds from 
offerings to make payments to other persons or entities for research coverage; 
(5) receiving 
payments from an outside entity for research issued in conjunction with an underwriting 
transaction without disclosing receipt 
of that payment to the public; or (6) threatening to drop 
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research coverage of an issuer if Defendant is not selected as the lead manager in an investment 
banking transaction. 
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 2210 and 
NYSE Rule 472 by issuing communications to the public that 
(1) 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; 
(2) fail to disclose the use of proceeds from offerings to make payments to other persons or 
entities for research coverage; or (3) fail to disclose the Defendant received payments from an 
outside entity for research issued in conjunction with an underwriting transaction. 
D. 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 3010 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 
business; (4) publication of research regarding a securities issuer with which Defendant has, has 
solicited, 
or is soliciting an investment banking relationship; (5) payments to Defendant for the 
publication of research by Defendant; and 
(6) payments by Defendant to other entities for the 
publication of research by such other entities regarding Defendant’s investment banking clients. 
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11. 
Monetarv 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 $32,500,000 (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. $12,500,000, as a penalty; 
2. $12,500,000, 
as disgorgement of commissions and other monies; and 
3. $7,500,000, to be used for the procurement of Independent Research, as 
described in Section 
VIII below and the undertakings set forth in Addendum 
A hereto. 
No portion of the payments for Independent Research shall be considered disgorgement 
or 
restitution, and/or used for compensatory purposes. 
B. The amount of $25,000,000, which is the sum of the penalty of $12,500,000 and 
disgorgement of $12,500,000, consists 
of (1) $12,500,000 in connection with the resolution of 
this action and related proceedings instituted by NASD and NYSE (the “Federal Payment”); and 
(2) $12,500,000 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 
Columbia and Puerto Rico) (Defendant’s offer to the state securities regulators hereinafter shall 
be called the “State Settlement Offer”).  Defendant shall pay the Federal Payment of 
$12,500,000 
by wire transfer into an interest bearing account with the Federal Reserve Bank of 
New York (“FRB-NY”), to be designated the “U.S. Bancorp Piper Jaffray Inc. Distribution Fund 
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Account” on the tenth business day after entry of this Final Judgment in accordance with 
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 by the FRB-NY until further order 
of the Court. 
In the event that any portion of the penalty described in Section D.A. 1 above is 
remitted for deposit into the Distribution Fund, such penalty amount shall be added to the 
Distribution Fund and distributed pursuant to the Fair Funds provisions in Section 
308 of the 
Sarbanes-Oxley Act of 
2002 and any further order of the Court; provided, however, that the full 
penalty amount and such portion shall still be 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 fee pursuant to 
28 
U.S.C. 6 19 14 for the Distribution Fund shall be four (4) percent of the 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 Judgment and any further applicable orders of the 
court. 
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 
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disgorgement payable under Section EA) 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 $12,500,000.  The total amount 
of 
penalties paid (1) in the Federal Payment (“PFei’) and (2) pursuant to that portion of the State 
Settlement Offer that is accepted by the state securities regulators (“PstateS”) shall at all times 
equal the total amount of disgorgement paid 
(3) in the Federal Payment ((‘DF~;’) and (4) pursuant 
to that portion of the State Settlement Offer that 
is accepted by state securities regulators 
(“Dstates)’). Insofar as any amount paid to the state securities regulators pursuant to the State 
Settlement Offer is deemed a penalty, the amount of the Federal Payment that is deemed a 
penalty shall be adjusted 
so that PFed + PStates = DFed + Dstates. 
111. 
Uses 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 468B(g) of the Internal 
Revenue Code and regulations thereunder.  The Distribution Fund Administrator appointed 
pursuant to Section 
IV.A below of this Final Judgment is designated the administrator of the 
Distribution Fund 
as defined in and for the purpose of Treas. Reg. 5 1.468B-2(k)(3)(i), and shall 
satisfy the administrative requirements imposed by Treas. Reg. 
0 1.468B-2 by, e.g., (1) obtaining 
a taxpayer identification number; 
(2) timely filing applicable federal, state, and local tax returns 
and payng taxes reported thereon; and 
(3) satisfying any information reporting or withholding 
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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. 
Q 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. 
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. 
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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 
from the Distribution Funds established in  those other actions.  The Commission may request 
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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 kghts 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; 
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 
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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, 
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 
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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. 
E. The Court may remove the Distribution Fund Administrator sua sponte 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 law and court 
orders, and shall not be liable to anyone for his own good faith compliance with any order, rule, 
law, judgment, or decree.  Nor shall he be liable by virtue 
of his compliance with the orders of 
this Court. 
In no event shall he be liable to Defendant for his good faith compliance with 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 former 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 
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, 
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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. 
V. 
Distribution Fund Plan 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that: 
A.  The Distribution Fund Administrator shall formulate and administer a Distribution 
Fund Plan in accordance with Sections 
V.B - V.G below. The Distribution Fund Plan is 
intended to provide for the equitable, cost-effective distribution of 
funds to Eligible Distribution 
Fund Recipients, as described below. 
An Eligible Distribution Fund Recipient is not precluded 
fi-om pursuing, to the extent otherwise available, any other remedy 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 
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 
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not necessarily equal) distribution of funds and that those who are allocated funds receive 
meaningful payments Erom 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” 
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 
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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 
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 
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of identifylng 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 Proceedinps 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 
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 
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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 ths 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, confirmations, 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 
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 
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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 Judgment, 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 require 
(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 and against liabilities, claims, and demands, 
whether civil, administrative, or investigative, judgments, fines, and amounts paid in settlement, 
and costs and expenses (including attorneys’ 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. 
VIII. 
Financial Obligation  Regarding Independent Research 
A. As referenced in Section II.A.3 above, Defendant shall pay a total of $7,500,000 for 
its Independent Consultant to procure Independent Research from the Independent Research 
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Providers over the five-year period set forth in Section III. 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 herein, 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 VIII.A in 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 will 
not be retained by Defendant and will be paid one-half to NASD and one-half to NYSE for use 
in their regulation and enforcement programs. 
B. Defendant shall also escrow $1,250,000 within thirty (30) days after entry 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 
III. 1 of Addendum A hereto. 
IX. 
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. 
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X. 
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 
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 identify 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; 
provided, however, that 
Defendant need not retain duplicate identical copies of public documents filed with the 
Commission or any other regulatory authority. 
- 19- 

XI. 
Defendant’s Consent Incorporated bv 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. 
XII. 
Attached Undertakings Incorporated bv Reference 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Defendant shall 
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. 
XIII. 
Definition of Defendant 
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that with respect to all 
injunctive relief and all hture obligations, responsibilities, undertakings, commitments, 
limitations, restrictions, events, and conditions, the terms “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 investment banking or 
research operations). 
- 20 - 

XIV. 
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. 
xv. 
Entrv 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 
31 ,2003 
WILLIAM H. PAULEY III d 
UNITED STATES DISTRICT JUDGE 
- 21 - 

UNITED STATES DISTRICT COURT 
SOUTHERN DISTFUCT OF NEW YOFW 

SECURITIES AND EXCHANGE COMMISSION, 

Plaintiff, Civil Action No. 

-against- 03 Civ. 2942 (WHP) 

U.S. BANCORP PIPER JAFFRAY INC., 

Defendant. 

FINAL JUDGMENT AS TO DEFENDANT 
U.S. BANCORP PIPER JAFFRAY INC. 

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

in this action (“Complaint”) and Defendant U.S. Bancorp Piper Jaffray 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 

Judgment; 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), 15B, 15C, or 19(h) of 

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

I. 

In iunctive Relief 

1T 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 Section 17(b) of the Securities Act of 1933 (“Securities Act”) [ 15 U.S.C. 9 77q(b)], by 

the use of any means or instruments of transportation or communication in interstate commerce 

or by use of the mails, to publish, give publicity to, or circulate any notice, circular, 

advertisement, newspaper, article, letter, investment service, or communication which, though 

not purporting to offer a security for sale, describes such security for a consideration received or 

to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully 

disclosing the receipt, whether past or prospective, of such consideration and the amount thereof. 

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 Rule 2 1 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; (4) failing to 

disclose or cause to be disclosed in offering documents or elsewhere the use of proceeds from 

offerings to make payments to other persons or entities for research coverage; (5) receiving 

payments from an outside entity for research issued in conjunction with an underwriting 

transaction without disclosing receipt of that payment to the public; or (6) threatening to drop 

- 2 -  



research coverage of an issuer if Defendant is not selected as the lead manager in an investment 

banking transaction. 

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 2210 and NYSE Rule 472 by issuing communications to the public that 

(1) 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; 

(2) fail to disclose the use of proceeds from offerings to make payments to other persons or 

entities for research coverage; or (3) fail to disclose the Defendant received payments from an 

outside entity for research issued in conjunction with an underwriting transaction. 

D. 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 3010 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 

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

solicited, or is soliciting an investment banking relationship; ( 5 )  payments to Defendant for the 

publication of research by Defendant; and (6) payments by Defendant to other entities for the 

publication of research by such other entities regarding Defendant’s investment banking clients. 

- 3 -  



11. 

Monetarv 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 $32,500,000 (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. $12,500,000, as a penalty; 

2. $12,500,000, as disgorgement of commissions and other monies; and 

3. $7,500,000, to be used for the procurement of Independent Research, as 

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

A hereto. 

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

restitution, and/or used for compensatory purposes. 

B. The amount of $25,000,000, which is the sum of the penalty of $12,500,000 and 

disgorgement of $12,500,000, consists of (1) $12,500,000 in connection with the resolution of 

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

(2) $12,500,000 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 

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

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

$12,500,000 by wire transfer into an interest bearing account with the Federal Reserve Bank of 

New York (“FRB-NY”), to be designated the “U.S. Bancorp Piper Jaffray Inc. Distribution Fund 

-4- 



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

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 by the FRB-NY until further order 

of the Court. In the event that any portion of the penalty described in Section D.A. 1 above is 

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

Distribution Fund and distributed pursuant to the Fair Funds provisions in Section 308 of the 

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

penalty amount and such portion shall still be 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 fee pursuant to 28 

U.S.C. 6 19 14 for the Distribution Fund shall be four (4) percent of the 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 Judgment and any further applicable orders of the 

court. 

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 

- 5 -  



disgorgement payable under Section E 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 $12,500,000. The total amount of 

penalties paid (1) in the Federal Payment (“PFei’) and (2) pursuant to that portion of the State 

Settlement Offer that is accepted by the state securities regulators (“PstateS”) shall at all times 

equal the total amount of disgorgement paid (3) in the Federal Payment ((‘DF~;’) and (4) pursuant 

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

(“Dstates)’). Insofar as any amount paid to the state securities regulators pursuant to the State 

Settlement Offer is deemed a penalty, the amount of the Federal Payment that is deemed a 

penalty shall be adjusted so that PFed + PStates = DFed + Dstates. 

111. 

Uses 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 468B(g) of the Internal 

Revenue Code and regulations thereunder. The Distribution Fund Administrator appointed 

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

Distribution Fund as defined in and for the purpose of Treas. Reg. 5 1.468B-2(k)(3)(i), and shall 

satisfy the administrative requirements imposed by Treas. Reg. 0 1.468B-2 by, e.g., (1) obtaining 

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

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

- 6 -  



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. Q 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. 

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. 

- 7 -  



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 

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

- 8 -  



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 kghts  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; 

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 

- 9 -  



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, 

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 

- 10-  



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. 

E. The Court may remove the Distribution Fund Administrator sua sponte 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 law and court 

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

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

this Court. In no event shall he be liable to Defendant for his good faith compliance with 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 former 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 

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, 

- 11 - 



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. 

V. 

Distribution Fund Plan 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that: 

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

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

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

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

fi-om pursuing, to the extent otherwise available, any other remedy 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 

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 

- 1 2 -  



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

meaningful payments Erom 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” 

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 

- 1 3 -  



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 

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 

- 1 4 -  



of identifylng 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 Proceedinps 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 

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 

- 15 - 



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 t h s  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, confirmations, 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 

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 

- 16 - 



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 Judgment, 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 require 

(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 and against liabilities, claims, and demands, 

whether civil, administrative, or investigative, judgments, fines, and amounts paid in settlement, 

and costs and expenses (including attorneys’ 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. 

VIII. 

Financial Obligation Regarding Independent Research 

A. As referenced in Section II.A.3 above, Defendant shall pay a total of $7,500,000 for 

its Independent Consultant to procure Independent Research from the Independent Research 

- 1 7 -  



Providers over the five-year period set forth in Section III. 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 herein, 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 VIII.A in 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 will 

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

in their regulation and enforcement programs. 

B. Defendant shall also escrow $1,250,000 within thirty (30) days after entry 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 III. 1 of Addendum A hereto. 

IX. 

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. 

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X. 

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 

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 identify 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; provided, however, that 

Defendant need not retain duplicate identical copies of public documents filed with the 

Commission or any other regulatory authority. 

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XI. 

Defendant’s Consent Incorporated bv 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. 

XII. 

Attached Undertakings Incorporated bv Reference 

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Defendant shall 

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. 

XIII. 

Definition of Defendant 

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

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

limitations, restrictions, events, and conditions, the terms “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 investment banking or 

research operations). 

- 20 -XIV. 

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. 

xv. 
Entrv 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 
31 ,2003 

WILLIAM H. PAULEY III d 
UNITED STATES DISTRICT JUDGE 

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