Two Credit Suisse First Boston executives were fined $200,000 each for their role in the firm’s alleged abuses in distributing shares of hot new stock offerings, the National Association of Securities Dealers announced Thursday.
J. Anthony Ehinger and George W. Coleman were also suspended for 30 days each, the NASD said. After the suspensions are completed, they will not be allowed to perform their duties as supervisors for an additional 30 days.
The fines and disciplinary moves were announced by the self-policing arm of the securities industry seven months after CSFB agreed to pay $100 million to resolve regulators’ allegations of abuses involving initial public stock offerings.
The Securities and Exchange Commission said CSFB, a major investment firm, gave favored investors a larger number of shares of the IPOs and got a share of its clients’ IPO profits in the form of inflated commissions on other stock trades.
Ehinger is CSFB’s global head of equity sales. Coleman is the firm’s institutional listed sales trading head. They neither admitted nor denied wrongdoing, the NASD said.
CSFB said in a statement that it took unspecified disciplinary action against employees after it paid the fine, and said those disciplined by the NASD consented to the moves.
Lawyers for Ehinger and Coleman issued a joint statement saying they decided it was “in the best interests of all concerned to resolve the case without admitting or denying the NASD’s failure-to-supervise charge.”
The NASD said fines and disciplinary actions were directly related to the claims that CSFB extracted tens of millions of dollars from customers in inflated commissions that amounted to a profit sharing arrangement for allocations of hot IPOs.
“NASD determined that CSFB’s IPO profit sharing practice was widespread, affecting more than 300 accounts,” the NASD said.
The NASD also suspended four former CSFB employees for one year and fined them $30,000 each for failing to provide NASD with timely testimony about the allegations.
They were identified as Scott M. Brown, Richard Scott Bushley, Michael S. Grunwald and John E. Schmidt. All were employed in the CSFB’s PCS Technology Group in San Francisco. They also neither admitted nor denied the allegations.
The NASD found that the departments under Ehinger’s and Coleman’s supervision executed thousands of transactions with excessive commissions.
Their departments influenced CSFB’s IPO allocations to customers who paid excessive commissions, and developed reports tracking both the amount of commissions paid by customers and their IPO profits, the NASD said.
Ehinger and Coleman also created documents to track the commissions paid by certain accounts, and the profit that each account would have made if it sold IPO shares on certain dates, the NASD said.
Using this report, the two and some subordinates encouraged customers to increase commission payments when they believed the customers’ IPO profits were too high in relation to the commissions paid to the firm, the NASD said.
Ehinger and Coleman also talked with subordinates about a goal to have certain accounts pay commissions amounting to as much as one-third of the profits, the NASD said.
Ehinger and Coleman talked with CSFB’s legal compliance department about whether high commissions could be accepted by the firm. But the department was not informed of the scope of excessive commission rates being paid to the firm, or the existence of the tracking document, the NASD said.
The NASD said their contacts with the legal department were a mitigating factor, but added that “those contacts were insufficient to discharge their supervisory responsibilities.”