FleetBoston to Settle Alleged IPO Abuses

Times Staff Writer

During the technology stock heyday of the late 1990s, no company was hotter than Robertson Stephens Inc., a San Francisco investment firm that helped dozens of Silicon Valley start-ups sell stock to investors.

But just as the firm symbolized the headiness of the Internet age, it also pointed up some of the era’s abuses, as regulatory actions against the now-defunct firm made clear Thursday.

Federal regulators ordered Robertson’s former parent, FleetBoston Financial Corp., to pay $33 million in fines and disgorgement of ill-gotten gains for the brokerage’s improper handling of initial public stock offerings in 1999 and 2000, and for the alleged wrongdoing of a former stock analyst at the firm.

The Securities and Exchange Commission and the NASD (formerly the National Assn. of Securities Dealers) alleged that Robertson forced investors to pay exorbitant commissions for access to hot IPOs during the late-1990s market boom.


That behavior broke rules prohibiting brokerages from sharing in the profits of their customers, among other infractions, the NASD said. Credit Suisse First Boston paid $100 million to resolve a similar investigation a year ago.

The SEC also charged that former Robertson analyst Paul Johnson issued “false and misleading” research reports to investors, and did not disclose that his “supposedly objective advice” was affected by his ownership of certain stocks.

This is one of the first cases against an individual in the current furor over analyst conflicts. Regulators announced a tentative deal with major Wall Street brokerages last month in which the firms agreed to pay $1.4 billion to settle investigations of analyst conflicts of interest. Regulators indicated then that they might follow up with cases against specific analysts.

In a civil complaint filed in federal court in New York, the SEC alleged that Johnson publicly endorsed two proposed mergers in which companies he covered -- Redback Networks Inc. and Sycamore Networks Inc. -- would be bought by a pair of private firms. He did not reveal that he owned stock in the private firms and stood to reap large profits, a material fact that he should have disclosed, said SEC attorney Yuri B. Zelinsky.


In another instance, Johnson reiterated a “buy” recommendation on Corvis Corp., a networking equipment maker, two days after selling the bulk of his holdings in the company, the SEC said. He did not reveal the sale to Robertson clients, the SEC said.

Johnson’s attorney, Eric Goldstein, said his client did nothing wrong.

“The SEC’s complaint is not supported by the facts or the law,” Goldstein said. “Mr. Johnson’s conduct was consistent with the SEC rules and regulations as they then existed, and he will litigate this case aggressively.”

Goldstein refused to comment further.


The payment agreed to by FleetBoston resolves parallel SEC and NASD investigations and precludes the potential filing of government lawsuits against the Boston-based banking company. As is common in such settlements, FleetBoston neither admitted nor denied guilt.

“Our goal in this matter was to get it behind us,” said Jim Mahoney, a FleetBoston spokesman.

According to regulators, Robertson Stephens forced more than 100 investors, primarily institutions such as hedge funds, to pay large commissions to receive shares of coveted IPOs.

Some investors paid commissions of $2.50 or more a share, far more than the 6-cent average that was normal on most trades. In some cases, investors made trades solely to generate commissions for Robertson by buying and immediately selling certain stocks.


Similarly, some wealthy individuals who got IPOs agreed to sell their shares to Robertson for less than what they could have gotten in the open market, the NASD said. That would allow the firm to profit by immediately selling the stocks at market prices.

The firm’s compliance department, which monitored employees to ferret out wrongdoing, was aware of the high commissions but didn’t stop them, according to the NASD. Robertson also deleted some e-mails that regulators had requested in their investigation, the NASD said.

The case underscores the ongoing controversy over Wall Street’s handling of IPOs during the 1990s bull market.

Getting in on IPOs was considered a sure-fire moneymaker as stocks routinely surged on their first trading day. But after the tech stock collapse, attorneys for some small investors have brought lawsuits charging that the firms manipulated the IPO market and caused large losses for their clients.


As for Robertson, the settlement serves as a coda for what once was considered a cutting-edge securities firm.

In the mid-1990s, Robertson was one of a handful of once-obscure Silicon Valley investment banks that capitalized on their close ties to Internet entrepreneurs. Robertson was the lead IPO manager for such firms as Critical Path Inc., E-Trade Group and Inc.

Eventually, Robertson and others were bought out by bigger firms at rich premiums for their founders and top executives.

Robertson was acquired in 1998 by BankBoston Corp., which was bought a year later by what is now FleetBoston.


But the management of Robertson and FleetBoston clashed over pay, and Robertson began to lose money as the bear market set in. FleetBoston shut down Robertson in July, saying it could not find a buyer.