25 April 2002 Investment banks JP Morgan Chase and Robertson Stephens are to be investigated by the US National Association of Securities Dealers (NASD) for alleged breaches of rules on initial public offerings (IPOs) during the dot-com boom.
The two stand accused of giving favoured clients a bigger allocation of stock in ‘hot’ IPOs during the tech’ stock frenzy of the late 1990s. In return, they received inflated commissions on other share trades.
The probe mirrors the in-depth investigation carried out by the US Securities and Exchange Commission (SEC) into the activities of Credit Suisse First Boston (CSFB), which resulted in the banking group paying a $100 million (€113m) fine earlier in the year.
Nevertheless, any penalties levied on Robertson Stephens and JP Morgan are expected to be lower than the CSFB fine, if only because the two securities firms played a smaller role in the technology IPO boom than the Swiss-based banking giant.
According to figures from Thomson Financial, Robertson Stephen’s parent company FleetBoston cut a 4.6% share of the IPO market in 1999 and 2000, while JP Morgan Chase achieved just 3.7%. That compares to CFSB’s share of 15.9%.
Separately, the SEC is investigating whether some securities firms put pressure on investors who had bought hot IPO stocks into placing orders for the same shares at a higher price on the first day of trading.
The investors’ compliance could have been a pre-condition for securing their big allocation of the IPO shares in the first place, the SEC suspects.
Such a practice – known as ‘laddering’ – would have helped fuel the artificial boom in share prices at the height of the tech stock frenzy. The companies investigated by the SEC include JP Morgan Chase and Robertson Stephens, as well as Morgan Stanley and Goldman Sachs Group.