• A Get Out of Jail Free card for the guys at the top of the power pyramid. Yes, Credit Suisse First Boston investment banker Frank Quattrone, head of the companys technology team, has been charged with obstruction of justice, and nothing prevents prosecutors from indicting anyone else in the industry. But in fact, the settlement means that Wall Street honchos like Sanford Weill of Citigroup (C, news, msgs), who vetted Jack Grubmans research report on AT&T (T, news, msgs) before it was published, are extremely unlikely to face criminal charges.
  
  
• The Feds (the Securities & Exchange Commission), the national regulatory bodies (the National Association of Securities Dealers and the New York Stock Exchange) and the state attorneys general (most notably New Yorks Eliot Spitzer) will all go away. Theyll stop their investigations and end their subpoenas.
  
  
• No Wall Street investment house will be forced out of the business, either by the size of the fines leveled against it or the restrictions placed on its activities.

• It wont restore investor faith in Wall Street and investing. Yeah, I know, everybody and his brother is claiming that this deal will restore investor faith in the workings of the financial markets. But the more I hear this, from William Donaldson, the new SEC chairman, or from CEOs like Philip Purcell of Morgan Stanley (MWD, news, msgs), the less convincing it sounds. Come on, investors are now going to believe Wall Street research because it comes with new buyer beware disclosure statements? Details of the investigation released with the settlement show that it was standard Street practice for companies such as Morgan Stanley to pay other Wall Street houses to publish positive research reports on client companies.
  
  
• It wont make the civil lawsuits go away. The pitiful $400 million pool set aside by the settlement to compensate investors who were harmed by these Wall Street practices is just a down payment. Importantly, the settlement does not bar investors who have received a payment from the restitution pool from pursuing claims against Wall Street firms. In those claims, the settlement and the details of the investigation that are now in the public record lay out a road map for lawyers representing investors who believe they lost money because of the way that Wall Street did business. Without spending a cent on research or discovery, lawyers will be able to make claims for investors with losses in Veritas Software (VRTS, news, msgs), Atmel (ATML, news, msgs), Flextronics International (FLEX, news, msgs), Netopia (NTPA, news, msgs) and eSpeed (ESPD, news, msgs), for example. All these companies are named in now-public documents describing situations where money changed hands to insure favorable research reports. And plaintiff lawyers now have access to a vast file of Wall Street e-mails that clearly indicate that analysts knew that they had to publish positive research to help their employers win investment banking business -- and so that they could collect hefty bonuses.
  
  
• It wont make the distractions go away. The settlement imposes all kinds of restrictions on Wall Street investment houses that are supposed to limit conflicts of interest at the companies. In addition, it requires many of these firms to adopt new business structures that are intended to put more distance between research and investment banking.
  
  I doubt that any of these will have much effect on the kinds of conflicts of interest that this settlement is all about. Remember that these firms all had Chinese Walls in place before this happened that were supposed to ensure that exactly this kind of stuff wouldnt happen. But even though these measures may prove to be ineffective, they are certain to be one huge pain as Wall Street goes about its business. For instance, Citigroup CEO Weill and other senior officers at the company are barred from talking to analysts about investment banking without a company lawyer present.
  
  And you can expect that competitors will use any and all opportunities to use the perception that these companies are too distracted to woo customers. Just this week on the subway to work, I heard a banker at FleetBoston Financial (FBF, news, msgs) say to an acquaintance, You know, if your mortgage broker at Citigroup is too distracted by all this settlement stuff to handle your mortgage quickly, just give me a call.
  
  
• It wont slow the flow of dollars from individual investors from the traditional Wall Street companies named in this lawsuit to newer, non-Wall Street asset managers. In fact, the settlement is likely to speed up this trend.

I think Wall Street had a decision to make when deciding what kind of deal to strike with the regulators. One choice was something that admitted fault in a believable fashion, adopted change that would actually reassure a majority of investors, and put real and damaging restrictions on the investment banking side of the business. Wall Street, or at least the part of Wall Street represented by the names in this settlement, chose not to take that path.

Instead, they went with the choice that protected their traditional and very, very lucrative capital markets business -- the business of raising money for corporate clients -- at the cost of potentially alienating a good portion of their retail investors. The investment houses decided to gamble that they could give those investors enough to keep them on board while making certain that they did nothing to lose the more profitable corporate finance business. I think this just increases the size of the opportunity facing the Fidelitys and Vanguards, and the folks at Charles Schwab (SCH, news, msgs) and Northern Trust (NTRS, news, msgs). And it increases the number and effectiveness of the competitive weapons they command.

So weigh what Wall Street gained against what it lost in this settlement. To me, after going through that math, the settlement doesnt seem nearly so one-sided -- not nearly as favorable for Wall Street as many believe.

A question of memory
In the short run, the decision to protect the corporate finance side of Wall Streets business is likely to be very profitable. And since that business is likely to come back faster than the retail side, this decision will look smart. And the stocks of the companies that made this choice should outperform the stocks of the nontraditional, off-Wall Street asset gatherers.

But in the long run, if investors have any kind of memory at all for the abuses detailed in this deal, I think Wall Street will regret this settlement. When individual investors come back to the financial markets, I think theyll look elsewhere for advice and management.

Of course, thats only if individual investors remember. And Wall Street is counting on them to forget.

New developments on past columns