SECs CSFB settlement may change the IPO rules

22 January 2002 Speculation is growing that the US Securities and Exchange Commission (SEC) will change the rules regarding Initial Public Offering (IPO) stock allocations in the US, following a landmark settlement with Swiss-owned Wall Street investment bank, Credit Suisse First Boston (CSFB).

The settlement with CSFB comes at the end of a one and a half-year SEC investigation into the bank’s IPO allocation practices during the dot-com boom of 1999 and 2000. Part of the settlement involves CSFB paying a total of $100 million (€113m) in fines – one the largest fines against a Wall Street firm.

The second part of the settlement, which should be announced later today, is expected to require CSFB to adopt revised policies and procedure for allocating IPOs, according to reports in The Wall Street Journal.

Changes include the appointment of a new committee to review IPO allocations and the obligation to pre-qualify accounts, such as hedge funds, to insure that they have been active for at least 60 days prior to the IPO allocation.

Although these regulations only apply to CSFB at this time, the Swiss bank is not the only Wall Street firm to come under fire for its IPO practices during the dot-com boom.

Other firms, including Goldman Sachs, Morgan Stanley, JP Morgan Chase and FleetBoston Financial investment bank Robertson Stephens, have been targeted by another related investigation by the SEC. Harvey Pitt, the SEC’s chairman, has already said that the agency may extend new guidelines to the entire industry after the CSFB case ends.

However, this settlement does not mark the end of CSFB’s, or the banking industry’s, dot-com era woes. Hundreds of private class-action lawsuits are still pending in New York’s federal court, alleging a wide range of IPO abuses by Wall Street firms.

It is unclear whether the recent settlement with CSFB will aid or obstruct the bank’s chances of getting off lightly from the private lawsuits. Analysts have said that the SEC’s $100 million (€113m) settlement with CSFB has been structured in a way not to imply guilt and therefore aid the class-action cases.

However, in The Wall Street Journal, lawyer Stanley Bernstein, who represents a number of class-action plaintiffs, describes the SEC settlement as “the equivalent of a fine for running through a red light,”. He goes on to say that his clients are suing “for the accident caused when you ran the red light.”

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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