The regulatory investigation of IPO “laddering” is reaching a peak, Wednesday’s Wall Street Journal reported.
The enforcement staff of the Securities and Exchange Commission has notified Goldman Sachs Group Inc. (GS) that it has recommended filing civil securities-fraud and market-manipulation charges against the securities firm for allegedly steering hot IPOs to investors who signaled plans to buy additional shares, people familiar with the matter say.
The SEC also has notified the securities unit of J.P. Morgan Chase & Co. (JPM) that it could face similar civil charges in the agency’s probe of laddering, in which investors who indicated they planned to buy more shares at higher prices after trading began were allegedly able to get more shares of initial public offerings, the people say.
In a statement, a Goldman spokesman said, “We categorically deny any allegations of wrongdoing and believe there is no basis for the SEC to take such a position.” Also, a J.P. Morgan spokeswoman denied any wrongdoing by the firm.
If true, such alleged laddering tactics could have stimulated additional demand for technology-company IPOs during the stock-market bubble of the late 1990s, stock-market traders say, contributing to the huge first-day IPO price gains that eventually worsened losses suffered by individual investors who bought once trading began.
The SEC enforcement staff sent the formal warning of the possible charges, contained in a so-called Wells notice, to Goldman in mid-October, according to a person familiar with the case. The warning to J.P. Morgan, which came more recently, concerned conduct by the securities unit of J.P. Morgan, and not the Hambrecht & Quist Group growth-stock specialist that Chase Manhattan Corp. purchased before Chase acquired Morgan in 2000, another person said.
An SEC spokeswoman declined to comment.
The developments come as major Wall Street firms are negotiating with regulators toward a global settlement of the numerous probes examining whether securities firms abused investors in the 1990s bull market through research conflicts of interest and questionable IPO-allocation practices.