Regulators Fine and Suspend Two Executives at CSFB
Securities regulators fined and suspended two senior executives at brokerage Credit Suisse First Boston on Thursday for their roles in a scandal involving initial public stock offerings in the late 1990s.
The penalties mark the latest development in regulators’ probes into whether Wall Street firms charged improper fees for IPO shares during the tech-stock boom. Authorities are investigating whether brokerages sought a piece of their customers’ often-huge IPO profits by charging kickbacks in the form of excessive commissions.
The National Assn. of Securities Dealers suspended for 60 days J. Anthony Ehinger, CSFB’s global head of equity sales, and George W. Coleman, its chief of institutional listed sales trading. Each man also was fined $200,000.
Earlier this year, CSFB agreed to pay $100 million to settle NASD and Securities and Exchange Commission charges that the firm had mishandled IPOs.
Although the Justice Department last year dropped a criminal probe of CSFB’s IPO business, Congress has shown intense interest in other IPO matters. Congressional investigators have been studying whether Salomon Smith Barney sought to lure investment banking business by doling out hot IPOs to telecom executives.
The IPO probes have triggered an avalanche of lawsuits from individual investors charging that investment banks intentionally manipulated the IPO market to boost their profits. As a result, the suits allege, small investors paid artificially high prices for stocks only to watch them crash when the technology stock bubble burst.
Separately Thursday, the NASD fined and suspended four former San Francisco CSFB employees for not giving timely assistance in the probe. Penalties were levied against Scott M. Brown, Richard S. Bushley, Michael S. Grunwald and John E. Schmidt. Each was fined $30,000 and suspended from the industry for a year.
The NASD charged that Ehinger and Coleman failed to prevent employees in their departments from overcharging customers in thousands of transactions.
The two men created a system that compared customer IPO profits with the commissions they paid for shares, according to the NASD. They dubbed the system the New Issue Performance Report. When IPO profits were deemed to be high in relation to the fees, the two men and their subordinates would “encourage” clients to pay higher commissions, the NASD said.
Ehinger and Coleman told underlings they wanted some clients to fork over commissions totaling one-third of their IPO earnings, the NASD said.
A statement issued by lawyers for Ehinger and Coleman said their case “raised enormously complicated and novel legal questions” and said the men thought it “in the best interests of all concerned to resolve the case without admitting or denying” guilt.
CSFB said in a statement that it had taken “internal disciplinary action” against employees involved in the IPO situation. The firm reportedly fined each man $500,000 earlier this year. Both men will return to their former jobs after the suspensions, according to a person familiar with the issue.
The NASD said Ehinger and Coleman asked CSFB’s legal department if they could accept high commissions, but did not detail for lawyers the magnitude of the fees.
As for the separate NASD action against the four former employees, Richard Marmaro, an attorney representing Schmidt, said the absence of NASD charges tied to IPO-specific issues was “vindication that [Schmidt] had done nothing wrong in that regard.”
Schmidt and Grunwald both have sued CSFB, alleging that the firm fired them last year to deflect criticism of itself. CSFB says the charges have no merit.
