The U.S. brokerage watchdog is probing how Wall Street firms, including JP Morgan Chase and Citigroup Inc , offer stock research, two people familiar with the probe said on Friday.

The Financial Industry Regulatory Authority, which supervises nearly 4,800 brokerage firms, sent letters to more than 10 firms in early November asking for information related to their unpublished research material, one of the people said.

The same person said FINRA is eyeing the firms' policies related to their delivery of the unpublished research material. Both sources requested anonymity because the sweep has not been made public.

The news was first reported by the Wall Street Journal, which said Morgan Stanley and Goldman Sachs Group Inc are also part of FINRA's inquiry.

FINRA is examining the firms' meetings, where unpublished research opinions were disclosed to non-research employees or clients, one source said.

FINRA has asked the firms how many conference calls they have had that included more than 15 people, who attended the meetings and whether any scripts were produced, the source said. The same source said FINRA is currently reviewing the responses.

JPMorgan and Citigroup declined comment. A Morgan Stanley spokeswoman and a Goldman Sachs spokesman also declined comment.

An academic expert said the inquiry could present a major problem for the banks if they were saying one thing in private and another in public.

If they put out analysts' reports that were glowing about a particular stock and then privately in these 'trade huddles' giving contrary advice, that creates a securities fraud problem, said Elizabeth Nowicki, a visiting law professor at Boston University and a former Securities and Exchange Commission attorney.

Nowicki also said the inquiry raised the issue of where the banks were getting their huddle-worthy information.

Is that coming from inappropriate violations of the information barrier, where an investment bank is doing capital markets work for a company at the same time it's covering the company? she asked.

Is some of the huddle information coming from a violation of those Chinese walls, or is it coming from insiders at the corporation dribbling back the information? That's the second, more nuanced issue.

Nowicki said the FINRA inquiry was unusual in its breadth and might indicate that, over the past several months, FINRA has found information that's troubling to them.

She added: I'm sure the banks that have not yet heard from FINRA are not sleeping well at night. Those executives, I think, are just waiting for the letter in the mail.

(Reporting by Elinor Comlay, Rachelle Younglai and Dan Margolies; editing by Steve Orlofsky and Andre Grenon)

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