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SEC May Punish Some Executives Who Snared Shares Of IPOs

Sep 27, 2002 | The Wall Street Journal

The Securities and Exchange Commission, in a significant shift, is considering enforcement actions against corporate executives who received shares of hot IPOs, people close to the agency told The Wall Street Journal.

The SEC plan to consider action against executives who received allocations of initial public offerings of stock is an expansion of regulators' scrutiny of the practice known as "spinning", in which Wall Street firms steer allocations of sought-after IPOs to executives of favored investment-banking clients in return for financing business from their firms.

The SEC's effort is an outgrowth of a broader bid by the agency to address conflicts of interest on Wall Street. SEC Chairman Harvey Pitt, in a series of measures that soon will be disclosed, is expected to require for the first time that Wall Street stock-research departments clearly be split from investment- banking operations, people familiar with a proposal being formulated say. It isn't clear whether Mr. Pitt will press for a total separation or something less severe.

Mr. Pitt also is expected, through a combination of proposed rules and enforcement actions, to require Wall Street firms to formally separate their IPO-allocation businesses from their investment-banking departments, these people say.

The SEC also is considering actions that would require corporate executives to disclose to their own boards the IPOs they receive from investment-banking firms. Whether this would require a new SEC rule isn't clear. The development stems from an investigation this year by the SEC, the National Association of Securities Dealers and legislators into the practice of spinning which first came to light more than five years ago but has so far escaped regulatory action. Until now, much of the focus by regulators has centered on whether the practice of spinning represented an illegal quid pro quo on the part of securities firms by tying IPO shares to investment-banking services.


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