Datek Says Goldman Reneged On Pact for a Piece of Its IPO
By JASON ANDERS
THE WALL STREET JOURNAL INTERACTIVE EDITION
May 7, 1999
Five hundred of Datek Online's brokerage customers got a jolt after markets closed Wednesday: The 100-share blocks of the exclusive Goldman Sachs Group initial public offering they thought they owned didn't actually exist.
Datek says it was told last week by Goldman, which led its own stock offering, that the online brokerage firm would receive an allotment of 57,500 shares of the IPO, and it began offering pieces of the deal to its most favored clients. But late Wednesday, after the shares had already been placed in clients' accounts -- and in some cases, traded -- Datek says it learned it wasn't receiving any shares of the IPO after all.
"This was one of our least proud moments," says Rob Bethge, Datek's chief marketing officer. "To say our customers were disappointed is an understatement."
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But Goldman maintains it never agreed to give Datek any shares. "We did not in any way fail to meet an obligation or renege on any agreement to deliver securities to Datek," a spokesman says. He blames the foul-up on an error within Datek.
Datek's Mr. Bethge acknowledges that this was Datek's first IPO, and says there may have been "communications errors." Still, he says Datek isn't ultimately responsible for the problem.
The mishap is interesting because Goldman had made it clear early on in the IPO process that it would handle the vast majority of the deal itself, even passing over underwriting help from some of the largest firms on Wall Street.
Datek, based in Iselin, N.J., placed the Goldman shares in customer accounts before the stock began trading on the New York Stock Exchange on Tuesday. The shares, which were sold at an IPO price of $53 apiece, were in fierce demand and soared in their first day of trading.
By the time Datek discovered the error late Wednesday, several customers had already traded the shares. "In some cases we had to undo some trades. It was a headache," Mr. Bethge says. He declines to say how many customers had already traded the shares, but says Datek bore the cost of undoing the mistake. He wouldn't specify the cost to Datek.
Some Datek customers went on online message boards blasting the mix-up. "This is a joke and I am probably closing my account," wrote one participant on a message board on the Silicon Investor discussion forum (www.techstocks.com).
It would have been a coup if Datek customers had been given a crack at the Goldman shares. Analysts say Goldman closely managed the offering, limiting it mainly to its institutional clients and wealthy customers -- those unlikely to "flip" the shares for a quick profit.
Goldman IPO Lives Up to Expectations, Soars in Debut (May 5)
Goldman Leaves Little To Chance With Red-Hot IPO (May 4)
Demand for the few shares available to individual investors was strong. The stock immediately jumped to $76 a share Wednesday before ending the day at $70.735, a 33% premium to the offering price. Goldman issued 69 million shares valued at a total of $3.66 billion. The stock was quoted at 67 15/16, down 1 3/16, on the Big Board Thursday.
"Obviously some wires got crossed here," says John Keefe, an independent financial analyst in New York. "I think it would be improper to attribute this to anything other than some sort of clerical error. This was a very hot offering, and everybody wanted a piece. I'm sure in the end, Datek, being a nontraditional institution, just got left out."
Datek pursued the Goldman IPO in response to increasing demand from its customers for access to offerings, Mr. Bethge says. "There's huge customer demand for IPOs. It's something we want to try again," he says.
Mr. Bethge says most customers Datek spoke with were irate but accepted Datek's explanation. He says in addition to a full refund of the price of the shares, the customers were offered 10 commission-free trades with the service. "Obviously that doesn't make up for it, but I hope they take it as a gesture of good will," he says.
He says the incident strained the firm's relationship with the affected customers. "These were clearly some of our best clients, and we certainly don't want to lose them over this," he says. |
