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SEC May File Civil Charges Against Morgan Stanley

Apr 13, 2003 | FT.COM The Securities and Exchange Commission is considering filing civil charges against Morgan Stanley in connection with the company's initial public offering allocation practices.

Morgan Stanley disclosed that it had received a so-called Wells notice indicating the likelihood of an SEC action in a quarterly regulatory filing on Friday.

The SEC has been investigating whether Morgan Stanley, as well as other Wall Street investment banks, engaged in what is known as the "laddering" of IPOs.

In such cases, an underwriter grants shares in an IPO to an investor after receiving indications that the investor would be willing to buy more shares after trading begins.

The SEC staff sent Wells notices to Goldman Sachs and JP Morgan last year, which led to speculation that Morgan Stanley would also receive notification. However, no charges have been filed yet against Goldman or JP Morgan.

The word of the SEC notification comes as regulators and leading investment bankers are putting the final touches on a settlement concerning multiple investigations into conflicts of interest in Wall Street equity research and IPO practices.

Under the settlement, 10 Wall Street banks are due to pay nearly $1.5bn in fines and payments to fund independent research for retail investors.

The agreement in principle has included as many as a dozen investment banks, but at least two have dropped out in recent days Thomas Weisel Partners and Deutsche Bank.

California regulators said last week that Deutsche had failed to turn over about 80 per cent of the emails requested in a probe of conflicts of interest at that bank.

The California regulators said they expected to settle charges with Deutsche separately from the other banks.

A final settlement with the other banks could come as early as next week, although disputes over language could stand in the way.

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