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Bear Stearns Delayed An IPO Its Analyst Praised In Web Cast

Action seemed to violate spirit of Wall St. settlement

May 13, 2003 | AP Credit card processor iPayment, Inc. became the first company to go public in two months yesterday, rising in its first day of trading despite news that a Bear Stearns analyst had praised the stock to potential investors ahead of the offering.

The analyst's prerecorded remarks were included in an "Internet road show" made available to institutional investors shortly after the firm signed an industrywide pact meant to curb stock research abuses.

Bear Stearns delayed the stock's initial public offering, originally set for Friday, apologized to regulators and said it would bar the analyst from covering the stock after The Wall Street Journal reported on the matter.

"We deeply regret that this unfortunate incident occurred," Bear Stearns spokesman Russell Sherman said yesterday. "Once the problem was identified, we took immediate action to rectify the situation and we are taking precautions to ensure that it will not occur again."

The government's $1.4 billion pact with Wall Street's 10 largest firms was completed April 28, and officially takes effect 60 days from that date - meaning Bear Stearns did not technically violate the agreement. But the episode fueled rising concerns about a lack of contrition on Wall Street.

New York Attorney General Eliot Spitzer, who helped negotiate the pact along with the Securities and Exchange Commission, spoke with Bear Stearns officials about the incident yesterday, his press secretary said.

"It was a source of concern," Spitzer spokeswoman Juanita Scarlett said, adding that officials at the firm "have expressed contrition and they have agreed to take steps to put the principles of the settlement into place immediately."

The SEC's enforcement chief considered it a positive step that Bear Stearns had acknowledged the problem and reassigned the analyst, but said the incident further underscored the need for the settlement's restrictions.

"It's just astonishing to me that a firm could allow an analyst to participate in a road show - and the fact that the prohibition on such conduct isn't literally in effect yet doesn't make me any less disappointed," Stephen M. Cutler said in a statement obtained yesterday.

Bear Stearns paid $80 million to settle charges that it allowed investment banking interests to influence the research of stock analysts. The firms collectively agreed not to use their stock analysts for marketing purposes.

At the market's close yesterday, iPayment shares were trading at $21.02, well above the $16 offering price. The Nashville, Tenn. company planned to sell 4.5 million shares, but later made 5 million shares available.

In its SEC filing yesterday, iPayment said it had not authorized any of the statements made during Bear Stearn's "Internet road show," which was broadcast to potential investors from April 28 to May 8.

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