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IPO 'spinning' probed
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April 16, 1998: 7:10 a.m. ET
Federal investigators said to heighten scrutiny of controversial practice
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NEW YORK (CNNfn) - Federal prosecutors have apparently started a probe into "spinning," a controversial practice whereby securities firms curry favor with influential executives with special allocations of popular initial public stock offerings in return for their future business.
The Manhattan U.S. Attorney's Office has launched an investigation of the practice in hopes of snagging Wall Street scofflaws, The Wall Street Journal reported Thursday.
Spinning occurs when a securities firm allocates initial public stock offerings to personal brokerage accounts held by venture-capital or corporate executives. The recipients then "spin", or sell, the IPOs with an eye towards locking in quick profits.
In this manner, securities firm are often able to curry favor with top executives, whose business is often the object of fierce competition.
In recent months, spinning has come under more and more scrutiny, with some investigators likening it to a flagrant "pay-for-play" scheme.
Since November, both the Securities and Exchange Commission and the National Association of Securities Dealers have been involved in civil inquiries of their own about the practice.
But analysts believe the latest development marks a new phase in the scrutiny. The Journal noted remarks by SEC Chairman Arthur Levitt Jr. indicating that he wanted to clamp down on bad brokers. Prosecutors want to determine whether spinning is tantamount to bribery.
Under Section 215 of the U.S. Penal Code, those found to have been given or received improper financial incentives of more than $1,000 are subject to sanctions of "not more than $1 million or three times the value of the thing given, offered, promised, solicited, demanded, accepted or agreed to be accepted, whichever is greater" or imprisonment for 30 days - or both.
The U.S. Attorney's Office did not confirm or deny the investigation. However, investigators concede that spinning has been on the wane recently as calls to clamp down on such practices have grown louder.
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