Invemed Accused of Unlawful Trading

Wall Street regulator NASD on Tuesday accused a small investment bank controlled by a New York Stock Exchange board member of illegally charging high commissions in return for access to hot stock offerings.

The NASD’s 16-page complaint against Invemed Associates, headed by NYSE board member Kenneth Langone, could mark further embarrassment for the world’s largest stock exchange, which is smarting from two recent high-profile missteps.

Also, NYSE Chairman Richard Grasso sits on the board of home improvement retailer Home Depot Inc., co-founded by Langone in 1978.

At the NYSE, where Langone has been a director since 1998, a spokesman declined to comment on the NASD move.

An assistant at Langone’s Park Avenue offices said Langone was not taking calls.

The complaint said that between October 1999 and March 2000, Invemed’s clients paid commissions as high as $2 a share on transactions where the normal charge would have been about 6 cents a share.

Clients also paid Invemed inflated commissions as high as $8 a share as they “flipped,” or sold immediately, newly allocated initial public offering shares, the NASD alleged.

“This conduct was widespread at Invemed, generated millions of dollars in illicit profits to the firm and accounted for approximately one-third of the firm’s agency commissions in that six-month period,” the NASD, the brokerage industry’s self-regulatory group, said in the complaint.

Although Langone is not named, the document contains at least four references to Invemed’s CEO, one of Langone’s titles.

NASD, formerly known as the National Assn. of Securities Dealers, is one of several regulatory units investigating brokerage practices during the market boom of the late 1990s.

At issue is whether investment banks made illegal arrangements with clients before doling out shares in companies they took public.

The NYSE board has been at the center of two other controversies recently.

Home decorating expert Martha Stewart resigned from the board Oct. 3, just four months after joining, as investigators probed possible insider trading related to her sale of ImClone Systems Inc. shares in December 2001.

Last month, the NYSE was forced to abandon a plan to install Citigroup Inc. Chairman Sanford I. Weill as a board member after opposition from New York Atty. Gen. Eliot Spitzer, who has spearheaded a probe into questionable business practices at Citigroup and other brokerages.