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JP Morgan Pays $25m To Settle SEC Case

Oct 1, 2003 | www.ft.com

JP Morgan Chase has agreed to pay a $25m civil penalty to settle allegations that it tried to manipulate the share prices of new public companies during the technology bubble.

The Securities and Exchange Commission, the chief US financial regulator, said the bank had indulged in abusive allocation of shares in initial public offerings, in violation of rules designed to stop attempts to create false demand for a company's shares. JP Morgan neither admitted nor denied the allegations.

The agreement is among several civil and regulatory matters JP Morgan has settled this year, including a $135m SEC fine related to Enron. The bank has set aside $1bn to cover litigation costs and fines so the $25m penalty will not affect earnings.

The IPO case centres on the allocation of shares in IPOs in 1999-2000, a time when receipt of some companies' shares could mean single-day profits of several hundred per cent.

Many Wall Street groups have been investigated or have settled over alleged IPO abuses, which include handing out IPO shares to favoured customers while attempting to obtain commitments to buy those shares or shares in other companies later.

Stephen Cutler, the SEC's head of enforcement, said of the JP Morgan investigation: "This case stands as a warning to all underwriters, they cannot engage in conduct that could distort the market for IPO stocks."

JP Morgan said: "We are pleased that we and the SEC have settled these charges and put this matter behind us."

The SEC stressed that JP Morgan had imposed no actual condition on customers in return for IPO allocations. "There was no explicit quid pro quo," said Antonia Chion, associate director in the division of enforcement. "But even the attempt [to obtain commitments to buy later] is in itself a violation."

JP Morgan customers, the SEC said, were induced to place share orders "and such customers often purchased stock during the new issues' first few trading days".

The bank told customers that expressing an interest in future purchases would "help them obtain allocations of hot and oversubscribed IPOs".


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