The Securities and Exchange Commission has reportedly recommended filing charges of civil securities fraud and market manipulation against Goldman Sachs for alleged IPO “laddering.” The agency also indicated J.P. Morgan Chase’s securities unit could face similar civil charges.
The agency’s notification to the two firms, reported in Wednesday’s Wall Street Journal, marks a step up in its investigation into laddering when investors get early shares of hot initial public offerings from underwriters after they indicate they plan to buy more stock later at higher prices.
Laddering has been cited as a possible explanation for the unprecedented run-up in opening-day prices of IPOs in the late 1990s. Those triple-digit one-day gains often burned individual investors as the inflated stocks fell back.
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.” A J.P. Morgan spokeswoman also denied any wrongdoing.
According to the Journal, the agency’s enforcement staff sent the warning of the possible charges to Goldman in mid-October. The J.P. Morgan notice came more recently and did not involve Hambrecht & Quist Group, which Chase Manhattan acquired before the Chase-Morgan merger.
The laddering developments on top of recent revelations of allegedly spinning hot IPOs to executives as a quid pro quo for new underwriting business come as Wall Street firms and regulators move toward a global settlement of the various investigations into alleged fraud and abuse by the firms.