Regulators, CSFB Work on Details of IPO Deal

Credit Suisse First Boston and federal regulators are working to finalize a proposed $100-million settlement of a probe into the brokerage firm’s handling of initial public stock offerings, sources said Tuesday.

CSFB has tentatively agreed to the payment to resolve an 18-month investigation by the Securities and Exchange Commission and the National Assn. of Securities Dealers, a source close to the matter said. But the two sides have yet to iron out the wording and details of any deal, sources said.

The settlement grew out of a broad investigation by securities regulators of how Wall Street firms distributed IPO shares during the late-1990s technology-stock boom. Much of regulators’ initial attention has focused on CSFB, the securities unit of Zurich-based Credit Suisse Group. They have sought to determine whether the firm charged excessive commissions to institutional investors that sought shares of coveted IPOs, and whether those payments amounted to kickbacks.

The SEC and the NASD also are looking into whether other firms manipulated IPO prices by forcing customers who received IPO shares to buy additional stock once formal trading began.

If a $100-million deal is reached, it would be the fifth-largest regulatory settlement of a securities-law case. The proposed deal was first reported by the Wall Street Journal. The amount paid in any settlement would go to the U.S. Treasury and to the NASD, according to the Journal. None of it would be earmarked for investors.

CSFB declined to comment, as did the SEC and the NASD.

The U.S. attorney’s office in Manhattan looked into bringing criminal charges against CSFB but decided late last month not to do so.

An agreement would represent a victory of sorts for CSFB, which has sought to hammer out a settlement with regulators.

However, CSFB and other firms still must contend with more than 1,000 suits filed by individual investors alleging that the firms manipulated the prices that many small investors paid to buy IPOs.

A large settlement with regulators could help investors convince a judge or jury that CSFB committed serious infractions.

“You don’t go around settling for $100 million unless there’s some meat to the allegations,” said Henry Hu, a securities-law professor at the University of Texas.

Melvyn Weiss, an investor attorney involved in many of the IPO suits, said any settlement would boost his cause.

However, the degree to which a settlement affects private lawsuits depends on how it is worded, experts said.

Regulators may allege that CSFB improperly shared in its customers’ IPO profits and that it committed bookkeeping infractions, according to the Journal. But CSFB could escape more serious charges of securities fraud.

Experts were split on what kind of message the proposed settlement would send to Wall Street.

Some said it would cause brokerages to think twice about engaging in wrongdoing.

“It’s a meaningful settlement and it certainly will deter people in the future,” said Lewis Lowenfels, a securities-law expert in New York.

Others said it would be a small price for CSFB to pay considering the enormous profits it made on tech IPOs in recent years. The firm earned $717.5 million in tech underwriting fees in 1999 and 2000 combined, ranking No.1 both years with 21% of the market, according to Thomson Financial.

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Staff writer Josh Friedman contributed to this report.