"Wall Street firm CSFB agrees to pay $100 million to settle SEC probe
MARCY GORDON, AP Business Writer
Tuesday, January 22, 2002
©2002 Associated Press
URL: sfgate.com
(01-22) 09:48 PST WASHINGTON (AP) --
Credit Suisse First Boston has agreed to pay $100 million to resolve federal regulators' allegations of abuses in its distribution of hot new stock offerings, the government announced Tuesday.
The Securities and Exchange Commission alleged that CSFB, a major investment firm, gave favored investors a larger number of shares of initial public offerings of stock, or IPOs, and got a share of its clients' IPO profits in the form of inflated commissions on other stock trades.
The SEC has been investigating for about 18 months Wall Street's dealings in IPOs during the tech-stock boom of 1999 and 2000.
As the lead underwriter of hot IPOs for companies including VA Linux Systems Inc., Selectica, Gadzooks Networks and MP3.com, CSFB had control over the allocation of most of the shares in the IPOs, the SEC said. In exchange for some of the highly-coveted stock, CSFB "wrongfully extracted" from certain customers a large share of the big profits those customers made in quickly reselling the IPO stock they got from CSFB, according to the agency.
It said that between April 1999 and June 2000, CSFB allocated shares of IPOs to more than 100 customers who, in return, funneled between 33 percent and 65 percent of their IPO profits to the investment firm. The customers typically resold the stock on the day of the IPO, often gaining tremendous profits, then transferred a share of the profits to CSFB in the form of excessive brokerage commissions, the SEC alleged.
CSFB neither admitted to nor denied the agency's allegations in agreeing to settle the SEC's civil lawsuit filed in federal court in Washington and a related action by the self-policing arm of the National Association of Securities Dealers.
In a statement, New York-based CSFB noted that the SEC and the NASD did not allege any fraudulent conduct by the firm.
"Today's settlement ... allows us to move forward," said John J. Mack, CSFB's chief executive officer. "We are strongly committed to upholding the highest standards of conduct at CSFB."
In addition to paying the $100 million, the investment firm also agreed to refrain from future violations and to tighten its practices to prevent future improprieties in selling IPOs.
The firm also said it is taking disciplinary action against the employees involved, including fines, suspensions without pay and suspensions from supervisory duties. Last June, three CSFB employees based in San Francisco were fired for their conduct related to IPO allocations.
CSFB will pay restitution of $70 million as well as civil fines totaling $30 million.
That is one of the largest civil penalties ever imposed on a brokerage firm, said Stephen M. Cutler, the SEC's enforcement director.
"CSFB improperly took advantage of its position as underwriter by allocating shares of hot IPOs to customers who agreed to share their IPO profits by paying excessive commissions," Cutler said.
Famed speculator Ivan Boesky paid the same amount in connection with the Wall Street insider-trading scandals of the 1980s.
Other Wall Street firms reportedly being investigated for IPO practices include Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co. and FleetBoston Financial Corp.
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On the Net:
Securities and Exchange Commission: www.sec.gov
Credit Suisse First Boston: www.csfb.com
©2002 Associated Press " |
