Federal securities regulators have fined the Robertson Stephens arm of FleetBoston $28m for taking millions of dollars in kick-backs from customers in exchange for hot initial public offerings.
The National Association of Securities Dealers and the Securities and Exchange Commission allege that brokers at the now-defunct investment bank demanded excessive trading commissions from more than 100 hedge funds and other customers who received sought-after shares of technology IPOs at the height of the bull market.
In some cases, senior Robertson brokers demanded up to 30 per cent of the profits on IPOs that gained as much as 355 per cent after their first day of trading, the regulators said. The customers complied by paying trading commissions as high as $2.50 per share instead of the usual 6 cents.
Robertson Stephens also shared in the profits by arranging for its private clients to resell their IPO shares back to the bank at deep discounts, according to regulators.
The allegations are similar to those levelled against Credit Suisse First Boston last year when the bank entered into a $100m settlement with regulators.
The settlement is a signal that the NASD and SEC are continuing to crack down on IPO abuses despite an historic $1.4bn settlement they clinched with Wall Street’s leading investment banks late last month.
Although that deal covered some IPO abuses, it did not relate to IPO kickbacks or another practice known as “laddering” that regulators continue to investigate.
“There was clearly a wide-spread effort to share in the tremendous profits their customers were making,” said Barry Goldsmith, executive vice president in the NASD’s office of enforcement. “We have a number of on-going investigations into this area.”
Robertson Stephens rose to prominence in the late 1990s as a boutique investment bank that specialised in technology companies. FleetBoston acquired the firm in 1998 for $800m and then took a $465m charge after closing the division last year. It did not return calls for comment.
As part of the settlement, FleetBoston will also pay $5m to settle charges that one of its research analysts, Paul Johnson, issued overly optimistic reports on two merging companies in which he owned shares.
Regulators also said that the bank’s compliance department failed to maintain internal emails and other potential evidence relating to the investigation.