CSFB Will Adopt New IPO Procedures

by Carla Johnson, Investors Offshore, London

23 January 2002

The SEC's pursuit of Credit Suisse First Boston (CSFB) over doubtful IPO practices (the alleged preference of major client investors such as hedge funds during the high-tech new issue boom) has resulted in an agreement by CSFB to pay a fine of $100m and more importantly to put in place a revised set of procedures for IPOs which will probably come to be adopted industry-wide as best practice.

The new procedures include creation of a new committee of CSFB capital-markets and stock executives to review IPO allocations. CSFB also will be required to "prequalify" some accounts, such as hedge funds, to receive IPOs only after having an account at CSFB for at least 60 days. The firm must also review commissions paid by investors around the time of an IPO.

The actions apply at this point only to CSFB, a unit of Swiss bank Credit Suisse Group. But Harvey Pitt, the SEC's new chairman, has said the agency may propose new guidelines after the enforcement phase of the case ends.

The SEC and the regulatory unit of the National Association of Securities Dealers have been investigating how Wall Street firms allocated new issues during the dot-com stock boom in 1999 and early 2000, when new IPOs routinely doubled or tripled in price on their first day of trading. One part of the probe focused on unusually high commissions, at times exceeding $1 a share, and whether this resembled kickbacks in exchange for the lucrative offerings. Another leg of the probe, into whether Wall Street firms required investors who got IPOs to buy more stock in the aftermarket, is pending. That part of the investigation focuses on firms including Goldman Sachs Group Inc., Morgan Stanley, the securities unit of J.P. Morgan Chase & Co., and the Robertson Stephens unit of FleetBoston Financial Corp. These firms have declined to comment.

Although the payment of $100 million is one of the largest penalties assessed against a Wall Street firm, CSFB will emerge without being charged with securities fraud or making material misstatements in IPO offering documents. Thus, the arrangement could help the firm deal with hundreds of private class-action lawsuits pending in a New York federal court alleging IPO abuses by Wall Street firms. The settlement doesn't cover past or current CSFB employees, who could still potentially face charges.

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