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SEC, Investment Bank Settle IPO Charges

Jan 10, 2003 | USA Today

Picking up where it left off almost a year ago, the Securities and Exchange Commission accused a former highflying investment bank of abusing its access to shares of hot new initial public offerings during the dot-com boom.

In charges filed Thursday, the SEC alleges that executives at Robertson Stephens doled out IPO shares to favored clients, only to demand kickbacks from those clients in the form of artificially high trading commissions.

FleetBoston Financial, which acquired Robertson Stephens' parent company in 1999, agreed to pay $33 million to settle all SEC charges, without admitting or denying guilt. Fleet shut down the San Francisco-based brokerage firm and investment bank last year.

The SEC's complaint against Robertson Stephens marks the first significant enforcement action targeting abuses spawned by the red-hot IPO market of 1999 and 2000 since the federal agency collected a $100 million fine from Credit Suisse First Boston a year ago.

''This demonstrates the commission's commitment to looking at IPO allocation practices,'' says Antonia Chion, an associate director of enforcement at the SEC.

The SEC complaint alleges that Robertson Stephens brokers sprinkled generous allocations of IPO shares in dot-coms to hedge funds and other big investors, guaranteeing them huge profits once those shares went public.

In return, the SEC charged, the hedge funds agreed to kick back money to Robertson Stephens by buying and selling shares of other companies at commission rates far above the customary 6 cents-a-share rate. Robertson Stephens netted $1 a share on many of the manufactured trades, with some trades going as high as $2.50 a share, regulators say.

In a separate action, the SEC accused former Robertson Stephens analyst Paul Johnson of issuing false research reports that helped him boost the value of his personal stock holdings.

An SEC complaint alleges that Johnson provided positive research for Redback Networks and Sycamore Networks after they proposed mergers with private companies. Unknown to investors, Johnson owned stock in both private companies and reaped millions after the mergers. Johnson's attorneys, Mark Pomerantz and Eric Goldstein of Paul Weiss Rifkind Wharton & Garrison, say his actions were legal at the time.

Former SEC attorney Steve Crimmins says that while Johnson's actions might not have been illegal at the time, the SEC has broad authority to take action against any securities transaction that could be construed as fraudulent.

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