WHAT CONFLICTS ANY MEAN TO YOU 

The fact that an analyst or the analyst's firm may have a conflict of interest does not mean that his or her recommendation is flawed or unwise. You should assess whether the recommendation is wise for you.

It's up to you to educate yourself to make sure that any investments you choose match your goals and tolerance for risk. Analysts generally do not function as your financial adviser when they make recommendations.  They're not providing individually tailored investment advice and they're not taking your personal circumstances into consideration.

UNCOVERING CONFLICTS

In addition to paying close attention to the disclosures that firms and analysts make, here are some steps you can take to assess whether and to what extent analyst conflicts may exist:

Identify the underwriter
Before you buy, confirm whether the analyst's firm underwrote a recommended company's stock by looking at the prospectus, which is part of the registration statement for the offering. Note that firms are required to disclose in research reports whether they managed or co-managed a public offering. You'll find a list of the lead or managing underwriters on the front cover of both the preliminary and final copies of the prospectus. By convention, the name of the lead underwriter—the firm that stands to make the most money on the deal—will appear first, and any co-managers will generally be listed second in alphabetical order. Other firms participating in the deal will be listed only in the "Underwriting" or "Plan of Distribution" sections of the final supplement to the prospectus. You can search for registration statements using the SEC's EDGAR database at www.sec.gov/edgar.shtml. The final supplement to the prospectus will appear in EDGAR as a "424" filing.

Research ownership interests
A company's registration statement and its annual report on Form 10-K will tell you who the beneficial owners of more than five percent of a class of equity securities are. Research reports on a company must disclose whether the securities firm issuing the report beneficially owns one percent or more of any class of common equity securities of the subject company.  In addition to the disclosure requirements in the new rules, you may be able to ascertain ownership by checking the following SEC forms:

Schedules 13D and 13G 
Any person who acquires a beneficial ownership of more than five percent must file a Schedule 13D. Schedule 13G is a much abbreviated version of Schedule 13D that is only available for use by a limited category of "persons," such as banks, broker-dealers, or insurance companies.

Forms 3, 4, and 5
Officers, directors, and beneficial owners of more than 10 percent must report their holdings—and any changes in their holdings—to the SEC on Forms 3, 4, and 5.

Form 144
If an analyst or a firm holds "restricted" securities from the company (meaning those acquired in an unregistered, private sale from the issuer or its affiliates) then investors can find out whether the analyst or the firm recently sold the stock by researching their Form 144 filings.

UNLOCK THE MYSTERY OF LOCK-UPS

If the analyst's firm acquired ownership interests through venture investing, the shares generally will be subject to a "lock-up" agreement during and after the issuer's initial public offering. Lock-up agreements prohibit company insiders, from selling their shares for a set period of time without the underwriter's permission. While an underwriter can choose to end the period early, lock-ups generally last for 180 days after the offering's registration statement.

After the lock-up period ends, the firm may be able to sell the stock. If you're considering investing in a company that has recently conducted an initial public offering, you'll want to check whether a lock-up agreement is in effect. This is important information because a company's stock price may be affected by the prospect of lock-up shares being sold into the market when the lock-up ends. It is also a data point you can consider when assessing research reports issued just before a lock-up period expires which are sometimes known as booster shot reports.
 

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