NASD Probes Credit Suisse Executives
Brokerage Credit Suisse First Boston and several of its high-ranking employees have been told that they may be charged with violating securities rules, amid a widening government-led probe of how Wall Street firms allocated shares of coveted initial public stock offerings.
The National Assn. of Securities Dealers regulation unit has served so-called Wells notices to CSFB and several employees, according to records posted on the NASD’s Web site. The notices tell targeted firms or individuals that the NASD staff recommends that they be charged with civil wrongdoing and gives them a chance to argue why they shouldn’t be charged.
The NASD is a brokerage industry self-regulatory group. Its investigation dovetails with a probe into IPO practices that the Securities and Exchange Commission and the U.S. attorney’s office in Manhattan began last year.
Regulators are investigating whether CSFB and other brokerages received inflated commissions from clients in exchange for IPO shares that surged in value. The concern is that any such commissions could have amounted to illegal kickbacks.
Star technology investment banker Frank Quattrone and his team in Silicon Valley helped make CSFB the largest IPO underwriter last year, as the tech-stock frenzy reached a peak.
Some of the CSFB employees who received the NASD notices include Andrew S. Benjamin, who headed the brokerage’s private-client services unit; George Coleman, a senior stock trading executive; and Thomas E. Fusco, an institutional salesman. In filings with the NASD, all three denied any wrongdoing.
The NASD investigation notices were first reported Wednesday by the Wall Street Journal.
Last month, CSFB placed three employees from its Bay Area office on leave. John Schmidt, Michael Grunwald and Richard S. Bushley all worked for the private-client area in the technology group and reported to both Quattrone and CSFB’s New York office.
A number of major brokerages besides CSFB have acknowledged receiving information requests from regulators related to their IPO activities. But CSFB is the only firm known to have suspended employees as the investigation deepens.
Some securities law experts say the probe has historical precedent.
“We saw similar investigations into IPO practices in the 1960s when the IPO market cooled,” said Kathleen Hamm, former assistant director of enforcement with the SEC in Washington, D.C., who now is a lawyer with Wilson Sonsini Goodrich & Rosati in Palo Alto. “Basically, what it comes down to is whether someone manipulated the sale of stock in the IPO immediately and in the after-market,” she said.
Sources say one angle of the probe is whether “tie-ins” occurred. A tie-in would be an illegal arrangement by which a brokerage offers clients shares in an IPO if they also promise to buy shares at a certain price once the stock begins trading. The additional buying could help propel the stock, giving the appearance of strong demand.
For its part, CSFB appears to be trying to distance Quattrone and his investment banking group from the investigation.
“The decision to place certain brokers on administrative leave had nothing to do with the technology group’s investment-banking clients, or their officers or directors,” said Chuck Ward, co-head of investment banking at CSFB, in a statement Wednesday.
Quattrone “is not and was not responsible for overseeing brokerage accounts or commissions, nor is he or was he responsible for IPO allocations, which are the subject of an industry-wide examination by various regulatory authorities,” Ward’s statement said.
