Posted on 09/08/2002 7:19:58 AM PDT by Libloather
CSFB Gets New IPO Headache with Probe
Sat Sep 7,12:08 PM ET
By Brian Kelleher
NEW YORK (Reuters) - Just when Credit Suisse First Boston must have thought it was off the regulatory radar, government investigators have placed the top Wall Street investment bank back into their sights.
A congressional inquiry into how underwriting firms allocate initial public offerings of stock has been expanded to include CSFB, a unit of Credit Suisse Group Inc., and Goldman Sachs Group Inc.
Lawmakers are investigating whether firms favored top executives of companies which were also clients of the investment banks when they doled out shares of hot IPOs.
"It seems to have been a widespread practice (for investment banks) to hand these underwritings out as if they were frequent flyer miles, which I think is wrong," said Ray Soifer, a former bank analyst who runs Soifer Consulting.
The U.S. House Financial Services Committee initially began its investigation into IPO allocations at Salomon Smith Barney, the Citigroup Inc. brokerage, then expanded to include the other investment firms.
The House probe centers on whether Wall Street banking clients were bribed with IPO shares to keep sending their underwriting and merger advisory business to certain firms.
Along with the pressure from Congress, investment banks may eventually face stricter rules when doling out IPO shares.
Salomon revealed it allocated large numbers of shares to top WorldCom Inc. executives, including former Chief Executive Bernard Ebbers, who made $11 million over four years off the stock offerings.
Ohio Republican Michael Oxley, chairman of the committee, said insider allocation of IPO shares unfairly dilutes the value of the stock for the small investor.
It's not the first time CSFB's IPO process has raised eyebrows. In January, it agreed to pay $100 million to settle accusations it charged extraordinarily high trading commissions in exchange for shares of high-flying offerings.
CSFB become one of Wall Street's top tech IPO underwriters during the boom of the late 1990s and early 2000, when the shares were virtually guaranteed to skyrocket and created insatiable investor demand.
CSFB's West Coast banker Frank Quattrone, who drove the firm's success in the tech sector, may become a target of the allocation probe.
Quattrone pushed to get more IPO shares for brokers who worked with his group, according to The Wall Street Journal on Thursday. Tech executives he worked with opened CSFB accounts and received up to 1,000 shares of hot IPOs, which were sometimes sold within days, the paper said.
A CSFB spokeswoman said the firm had no comment on the Journal story but that CSFB welcomes "the opportunity to cooperate with Congress and Chairman Oxley's request."
During the earlier probe, CSFB said Quattrone had nothing to do with doling out IPO shares.
Harvey Pitt, chairman of the U.S. Securities and Exchange Commission, on Aug. 22 asked the National Association of Securities Dealers and the New York Stock Exchange to review the IPO allocation process to see if it needs to be reformed.
CRISIS OF CONFIDENCE
Securities firms with investment banking and brokerage operations have long touted the synergies between the two: top executives at companies that are banking clients can be potential brokerage clients, and vice versa. Since the practice is so accepted, it's hard to tell if the investment houses crossed the line, Soifer said.
"The practice has a lot of good points, but it's a matter of preventing abuses," he said.
After investor confidence in Wall Street and corporate America in general has been shaken, the industry needs to be above reproach, analysts say.
The issues have weighed heavily on brokerage shares, and analysts take "headline risk" into account these days as any firm could be the next one targeted by authorities.
Shares of Switzerland's Credit Suisse Group were down 68 cents, or 3.11 percent, at $21.22 in New York Stock Exchange trading and off 1.11 percent in Zurich. Goldman shares fell $2.65, or 3.51 percent, at $72.85.
"Wall Street must lead the way in rebuilding the confidence of investors," Morgan Stanley analyst Henry McVey said in a research note on Thursday. "Our companies face issues of high executive compensation, related-party transactions, and board independence that could eventually hinder this effort."
'FRIENDS OF FRANK'
The NASD on Aug. 15 suspended and fined six former and current CSFB executives a total of $320,000 for their roles in the original IPO probe. The four ex-staffers who were censured worked in CSFB's brokerage unit and reported to Quattrone.
By early 2000, executives for Quattrone banking clients had opened 160 CSFB brokerage accounts -- known as "Friends of Frank" accounts -- up from 26 in January 1999, the Journal said, citing a CSFB e-mail.
The value of those accounts tripled to a peak of $150 million, and the clients would sell two-thirds of their IPO allocations within a month of receiving them, the paper said.
Smells like McAuliffe spirit...
But, no matter how many democrap functionaries, how many bribe taking wives, or bribe giving/taking Rubins and Rubinsons you can point to (and, maybe, even prove), the regular ultra-leftist media won't be interested.
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