CSFB Settles IPO Kickback Charges; SEC Says Investigation Continues
Federal securities regulators formally announced Tuesday the settlement of one part of a probe into alleged manipulation of initial public stock offerings in the late 1990s. But officials stressed that the investigation continues on other fronts.
As reported in The Times on Saturday, brokerage Credit Suisse First Boston agreed to pay $100million to settle charges that it allotted sought-after shares of IPOs in exchange for investor kickbacks in the form of higher commissions.
The securities firm, which made $718 million underwriting technology IPOs in 1999 and 2000, will pay a $30-million fine and disgorge $70million in profit to resolve charges of “abusive IPO allocation practices,” the Securities and Exchange Commission said.
Demands for higher commissions were pervasive and encouraged by some senior executives at the unit of Swiss bank Credit Suisse Group, the agency said.
The SEC and the National Assn. of Securities Dealers alleged that CSFB illegally profited on skyrocketing IPOs by charging commissions of as much as $3.15 a share, compared with a typical rate of 6 cents.
The SEC continues to investigate at least nine firms, including Morgan Stanley and J.P. Morgan Chase & Co., in connection with IPO underwriting practices. The settlement by CSFB may not end the prospect of SEC action against individuals at the firm.
“While I do not wish to comment on any individuals, I will say that our investigation is continuing,” said Stephen Cutler, the SEC’s director of enforcement.
The SEC didn’t accuse CSFB of fraud, instead charging it with violating federal record-keeping requirements.
CSFB neither admitted nor denied wrongdoing.
“We are very pleased that our firm has reached a full resolution of this matter with regulatory authorities,” CSFB Chief Executive John Mack said. “We are strongly committed to upholding the highest standards of conduct.”
The $30-million fine is the second-highest after Salomon Bros.’ $120-million fine in 1992 for submitting bogus bids at Treasury bond auctions.
The SEC also is probing whether firms, including Morgan Stanley, Goldman Sachs Group, FleetBoston Financial’s Robertson Stephens unit and J.P. Morgan, received pledges from customers to purchase more stock after IPOs began trading. Although that inquiry has a different set of facts, CSFB’s agreement may presage a settlement by other firms, legal experts said.
CSFB agreed to change its methods of allocating IPO stock and its supervisory practices. The firm also agreed to hire an independent consultant to review its new policies after a year and to adopt the consultant’s recommendations.
CSFB and three dozen other firms still face more than 1,000 class-action lawsuits filed by investors who were saddled with losses after shares of companies such as VA Linux Systems Inc., Red Hat Inc. and Akamai Technologies Inc. plunged. But the firm’s legal position in these suits is strengthened by its avoidance of SEC fraud charges, analysts said.
The payments from the settlement with regulators will go to the SEC and the NASD, not to investors who claim they lost money investing in technology companies.
“There’s no impact. The money isn’t intended to go to the class members,” said Melvyn Weiss, the lead lawyer in a class-action lawsuit against CSFB and the other investment banks. He said he will press ahead with his case.
