NASD Orders CSFB To Pay $150,000 Over MP3.com IPO

by Glen Shapiro, LawAndTax-News.com, New York

05 February 2004

The National Association of Securities Dealers (NASD) on Monday announced that it has fined Credit Suisse First Boston $150,000 for failing to execute the "market orders" placed by some investors during the first day of the initial public offering (IPO) of MP3.com.

According to NASD, on July 21, 1999, CSFB, as the lead underwriter, conducted MP3.com's initial public offering (IPO) and MP3 began trading on The Nasdaq Stock Market. At the opening of trading on that day, CSFB had orders to buy more shares of MP3 than it had to sell. CSFB did not meet its obligation to make every reasonable effort to execute six of its customer sell orders fully and promptly.

NASD's Market Regulation Department found that CSFB initially sold short over 330,000 shares of MP3 to other customers at a price of $100.50 per share. While CSFB gave prompt partial executions to three of the six customer sell orders for approximately 15 percent of the combined volume of the six sell orders, the balance of the six orders received untimely executions. Instead of satisfying its best execution obligations as to the remaining portion of the six customer orders, CSFB executed them as the market declined.

Due to the manner in which CSFB executed the six customer orders, CSFB profited, and its customers were disadvantaged by, $606,000.

In addition to the fine imposed by the Wall Street regulator, CSFB has made restitution to the affected investors for their lost profits.

In a statement, CSFB announced that it is "pleased to have the matter behind us".

The Securities and Exchanges Commission (SEC) is reported to be considering a number of reforms to the IPO process, including a stipulation that market orders (which instruct banks and brokers to sell stocks as soon as possible, and at the best price) cannot be placed on the first day of IPOs.

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