Pretty interesting that at least one of the authors of the GG is a sleaze ball lying cheat, no?
Caxton
$33 million settlement for Fleet
Todd Wallack, Chronicle Staff Writer Friday, January 10, 2003
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FleetBoston Financial Corp. agreed to pay $33 million to settle federal charges that its defunct San Francisco investment arm, Robertson Stephens, parceled out shares in hot initial public offerings to investors in exchange for kickbacks, erased some of its e-mail and failed to supervise a research analyst who violated conflict-of-interest rules.
In a related action, the Securities and Exchange Commission also filed suit Thursday against the analyst, Paul Johnson, for allegedly issuing a "buy" recommendation on a stock he privately said was overpriced, and touting two merger deals without disclosing that he stood to earn millions of dollars on the transactions.
Johnson, 42, lives in New York and is pursuing another job in the securities industry, according to his attorney, Mark Pomerantz. Pomerantz said that Johnson's actions didn't violate any laws at the time and that his client will contest the SEC's allegations.
The government's move marks another chapter in the astonishing fall of Robertson Stephens, the investment boutique that became one of the largest underwriters of technology firms in 1999 and 2000 during the dot-com boom, only to collapse when the Internet bubble burst.
Fleet, which acquired Robertson Stephens in 1998 as part of its merger with Bank Boston, shuttered the unit in July after most of its business dried up and it racked up several quarters of losses.
The deal is also the latest effort by securities regulators to clamp down on investment firms amid complaints that Washington ignored rampant conflicts on Wall Street for years, eventually leading to a barrage of corporate scandals.
In recent weeks, the SEC struck a $1.4 billion settlement with 10 securities firms and a $32.5 million settlement with US Bancorp Piper Jaffray to settle charges they misled investors with inflated stock ratings.
And a year ago, Credit Suisse First Boston agreed to pay a $100 million fine to settle allegations that it improperly doled out IPO shares to investors in exchange for a share of the profit.
During the dot-com boom, tech IPOs often doubled or more in their first day of trading -- allowing the handful of investors with access to stocks at the initial offering price to turn a quick profit.
In this case, the SEC said Robertson Stephens distributed IPO shares in 1999 and 2000 to more than 100 investors who didn't normally qualify for the limited offerings.
In exchange, the investors agreed to pay inflated commissions, in some cases more than 4,000 percent higher than the standard rates, on other trades made around the time of the IPO. The SEC said there was "no economic purpose" for the trades other than to generate money for Robertson Stephens.
To settle that portion of the complaint, FleetBoston agreed to pay $28 million to the SEC and the National Association of Securities Dealers.
FleetBoston agreed to pay an additional $5 million fine to settle accusations that it failed to preserve all its e-mail for three years and didn't supervise Johnson closely enough.
Specifically, the SEC accused Johnson of touting two merger deals from which he secretly stood to reap enormous profit.
In the first case, Johnson invested $50,000 in a Mountain View communications equipment startup called Siara Systems in early 1999.
When Redback Networks agreed to buy the firm for $4.3 billion later that year, Johnson issued a report praising the deal as an "excellent strategic fit. " Under terms of the deal, Johnson's $50,000 stake would be worth close to $4. 8 million at the time.
Then, in January 2000, Johnson invested in Sirocco Networks, a Connecticut communications equipment startup. When Sycamore Networks agreed to buy the company for $2.9 billion five months later, Johnson issued a report calling it a "smart move on Sycamore's part." Under terms of the proposed merger, Johnson's $75,000 stake in Sirocco would be worth $1.9 million.
Though Robertson Stephens issued boilerplate disclaimers that its analysts might have "an interest in the securities" described in the report, they didn't specifically disclose the holdings, the government said.
The SEC says Robertson Stephens executives learned in 1999 that Johnson had made numerous investments in private companies without notifying the company as required, but did not monitor or review his investments for potential conflicts.
In addition, the SEC rapped Johnson for issuing a "buy" rating on Corvis, a Maryland optical communications equipment firm, when it was trading at $23 -- then telling an investment committee a week later: "I wouldn't buy at this price." Johnson said he would buy the stock at $12 to $14 instead.
Regulators said Johnson misled investors.
"Whenever analysts undertake to speak to the financial community . . . they have a duty to speak fully and completely, and disclose all material facts, said Yuri Zelinsky, who works in the SEC's enforcement division.
But Johnson's attorney says the SEC only recently changed the conflict-of- interest regulations to make the conduct illegal.
"Mr. Johnson's conduct was consistent with SEC rules and regulations as they then existed," Pomerantz said.
In addition, Pomerantz pointed out that Johnson was hardly the only analyst to invest in private companies related to his coverage area.
"I have no idea why (Johnson) was sued and (others) have not been," Pomerantz said.
The deal with FleetBoston also resolves a related action by the NASD.
"We are very pleased . . . to get these matters behind us," said FleetBoston spokesman James Mahoney, adding that the bank approached regulators about a settlement late last year.
E-mail Todd Wallack at twallack@sfchronicle.com. |
