CSFB Settlement Report Shakes Wall Street
By Brian Kelleher
NEW YORK (Reuters) - Credit Suisse First Boston reportedly will pay $100 million to settle federal charges that it mishandled hot stock offerings during the final days of the 1990s bull market, setting the stage for other Wall Street firms to follow suit.
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CSFB, a unit of Swiss financial services giant Credit Suisse Group Inc. (NYSE:CSR - news), will settle an investigation into whether it charged big customers extraordinarily high trading commissions in exchange for shares of high-flying initial public offerings, the Wall Street Journal reported on Tuesday, citing people familiar with the matter.
The investigation also focused on whether Wall Street firms required rich customers to buy more IPO shares on the first day of trading to guarantee a news-making jump in the stock price. The probe involves many of Wall Street's biggest firms, and has resulted in a flood of civil law suits by disgruntled investors.
Many Internet and other tech offerings skyrocketed on the first day of trading in 1999 and 2000 -- sometimes increasing five-fold. Many of those stocks have since crashed in the stock market's wrenching 20-month slide.
``The issue is not dead yet for the other firms,'' said Dave Trone, an analyst at Prudential Securities, referring to rivals such as Goldman Sachs Group Inc. (NYSE:GS - news), Morgan Stanley (NYSE:MWD - news), and Citigroup Inc. (NYSE:C - news) unit Salomon Smith Barney, which are also under investigation and the targets of more than 1,000 IPO-related lawsuits.
A CSFB spokeswoman declined to comment on the matter, and spokespeople for the U.S. Securities and Exchange Commission and the regulatory arm of the National Association for Securities Dealers -- which were reported to be negotiating with CSFB on a settlement -- declined to comment. But one CSFB source told Reuters the company and regulators have not yet signed anything definitive.
If CSFB announces a settlement -- which the newspaper said should come by the end of the year -- it could prompt the other firms to follow suit and avoid the negative publicity of a prolonged investigation, Trone said.
``There will be a few more settlements, (but) not of that magnitude,'' assuming the $100 million figure is accurate, Trone said. In 2000, CSFB managed more IPOs than any other firm, 92 in all, according to research firm Thomson Financial Securities Data.
Representatives from both Salomon and Goldman Sachs declined to comment, and spokespeople for the other firms were not immediately available for comment.
UNPRECEDENTED PERIOD FOR IPOS
CSFB and its Wall Street rivals rode the tech wave of the late 1990s and early 2000 to capitalize on an insatiable demand for tech IPOs, pulling in billions of dollars in underwriting fees and shattering previous profit records.
The settlement will likely pave the way for new rules governing the allocation of IPOs, the Journal reported. Stricter rules won't have much of an effect until the IPO market recovers.
``It's a moot point until you see a red-hot IPO market again,'' Trone said.
CSFB's tumultuous 2001 was marked by the ouster of Chief Executive Allen Wheat and the dramatic decline in revenues from its stock underwriting and merger advisory businesses. CSFB is cutting bonuses and 2,000 jobs under new CEO John Mack to cope with the revenue decline.
In June, the firm fired three San Francisco-based brokers from its technology group for violating firm policy. The three brokers had been on administrative leave since April.
The brokers worked for CSFB's star banker Frank Quattrone, the driving force behind its tech IPO prowess. Quattrone will likely escape the investigation unscathed, although the settlement will likely lead to new rules governing IPO allocations, the report said.
When CSFB hired Mack -- formerly president of Morgan Stanley -- in July, it contended that his appointment had nothing to do with the IPO probe. But on Wheat's watch, CSFB ran afoul of Swedish and Japanese regulators, prompting some to take note of what they considered to be the firm's lax controls and its reputation for giving executives a lot of leeway.
Mack, who promised the company would act more as a combined unit, hired the former head of enforcement at the SEC as CSFB's general counsel in August. |
