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2 Wall Street Firms Notified of Charges

Nov 7, 2002 | Bloomberg News

Securities and Exchange Commission investigators told Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. that they plan to ask the agency to file stock fraud and market manipulation charges against the firms.

The SEC's staff alleges the companies allotted shares in initial public offerings to investors who promised to buy more stock later at a higher price, ensuring a gain when trading began. J.P. Morgan Chase & Co. spokeswoman Kristin Lemkau, who said the company received the so-called Wells notice in recent weeks alerting it to the possibility of charges, said the bank denied any wrongdoing. Goldman spokesman Lucas Van Praag said Goldman did nothing wrong in allocating IPO shares.

The allegations may pressure the firms to settle other probes into whether Wall Street misled investors during the bull market, some lawyers said. Goldman, J.P. Morgan, and 10 other firms are talking to regulators to resolve allegations of conflicts of interest in stock research and IPO allocations by paying fines.

''The idea seems to be let's get everything done, wrap some big numbers around it and say victory is ours,'' said Edward Fleischman, a former SEC commissioner who is now a lawyer at Linklaters in New York who advises companies on securities regulation. ''The Street gets the issue out of the newspapers finally and the regulators get big amounts of money to show investors what they've accomplished.''

SEC spokesman John Heine declined to comment. The SEC notification is one of the last steps before the agency's staff asks the commission to file a civil lawsuit or administrative proceeding. After firms receive Wells notices, they are given a chance to argue why a case shouldn't be brought.

In January, Credit Suisse First Boston, without admitting wrongdoing, agreed to pay $100 million to settle charges from the SEC and National Association of Securities Dealers that it allotted sought-after shares of initial public offerings in exchange for investor kickbacks in the form of higher commissions.

The SEC continued to investigate at least nine firms in connection with IPO underwriting practices. These included laddering charges leveled at Goldman, J.P. Morgan Chase, Morgan Stanley, and FleetBoston Financial Corp.'s former Robertson Stephens unit.

The Wall Street Journal reported the notices to Goldman and J.P. Morgan earlier yesterday.

J.P. Morgan's Lemkau said the company ''denied any wrongdoing on the part of the firm.'' Goldman's Van Praag said: ''We're entirely confident our IPO allocation process has been and remains appropriate.''


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