(June 29) – “An analyst spreads a rumor that one company is about to buy another one, and the stock of the target company soars. The rumor proves to be false, and the stock price falls back,” writes Floyd Norris in today’s New York Times.

“The chain of events has occurred countless times. But now something different has happened. The analyst — a well-known Wall Street banking specialist — and the brokerage firm that employed him have been censured and fined by the New York Stock Exchange.”

“The exchange announced yesterday that Thomas H. Hanley, 56, formerly the lead banking analyst for UBS Securities, had been censured and fined $75,000. The exchange said he ‘circulated a rumor regarding an exchange-listed security for which he lacked a reasonable basis and which might reasonably be expected to affect market conditions.'”

“UBS Securities, a unit of the Swiss banking company UBS A.G., is now called Warburg Dillon Read. It was censured and fined $60,000 for failing to prevent Mr. Hanley from circulating the rumor.”

“A Big Board official said that the exchange had previously taken action against at least seven other people for circulating false rumors but that this case appeared to be the first such action against an analyst.”

“The incident occurred on Sept. 18, 1997, when Mr. Hanley spoke to the UBS sales force via what the exchange called the firm’s “hoot ‘n’ holler” system, which connects all of the firm’s offices in the United States and Europe.”

“Mr. Hanley said that Bankers Trust was ‘indeed gone’ and would be acquired by the Travelers Corporation at a price of $162 to $167 a share.”

“The stock was then trading at about $120.”

“The stock soared, reaching a peak of $133.625, and Bankers Trust soon issued a denial. But Mr. Hanley, who repeated his comments on CNBC, continued to say he thought the deal would happen. It didn’t.”

“Within a week, however, Travelers did announce a deal to buy Salomon Inc., the parent of Salomon Brothers, and it eventually merged with Citicorp to form Citigroup. Bankers Trust was acquired by Deutsche Bank in 1999.”

“Mr. Hanley has never said why he believed Bankers Trust was going to be bought by Travelers. Yesterday, he issued a statement saying: ‘I am known for my detailed research and believe that I had a reasonable basis for my opinion. The exchange obviously disagreed. I decided to settle this matter to avoid the distraction and expense associated with a protracted and drawn-out legal proceeding. Having opinions is the job of a research analyst. I look forward to continuing to provide clients with well-reasoned research.'”

“The Big Board said that Mr. Hanley did not have a reasonable basis for the call but did not accuse him of profiting from it in any way. There was no mention of any trading by him in the stock.”

“For Mr. Hanley, long one of the best-known banking analysts on Wall Street, the Bankers Trust call appears to have been the worst one he ever made, at least in terms of personal effect.”

“In February of this year, he resigned from Warburg Dillon Read, and has not yet taken another position. A spokesman for UBS told Bloomberg News there was no connection between the investigation and Mr. Hanley’s departure.”