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SEC probes IPO allocations
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November 28, 2001: 7:53 a.m. ET
Government questioning IPO practices of major Wall Street firms.
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NEW YORK (CNN/Money) - The U.S. Securities and Exchange Commission is investigating whether four major securities firms improperly handled initial public offerings of stock, according to a published report Wednesday.
The SEC is trying to determine whether Goldman Sachs Group Inc. (GS: Research, Estimates), the Robertson Stephens unit of FleetBoston Financial Corp. (FBF: Research, Estimates), the securities unit of J.P. Morgan Chase & Co. (JPM: Research, Estimates), and Morgan Stanley (MWD: Research, Estimates) improperly doled out public stock offerings to customers who promised to buy more shares once trading began, the Wall Street Journal reported.
The government also is trying to determine whether such "aftermarket" orders constituted manipulation during the boom in technology stocks, which ended last year. The four firms declined comment to the Journal.
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Separately, Credit Suisse First Boston is in settlement talks with securities regulators over a probe into how the company extracted higher commissions from investors in exchange for hot IPOs, and whether that process involved kickbacks. CSFB declined to comment.
Since launching the IPO investigations last year, regulators have focused on two major issues.
The first involved CSFB and large commission payments to Wall Street firms in exchange for IPO allocations. That led the U.S. Attorney's office in Manhattan to convene a grand jury to consider a possible criminal case. Ultimately, three CSFB brokers in California were dismissed in June followed by CEO Allen Wheat in July.
The second issue involved whether some firms improperly bundled IPO allocations to promises of further share purchases - a practice known as "laddering."
The SEC has warned that such practices could violate antifraud and antimanipulation rules, saying such practices likely helped fuel the tremendous first-day gains by dot.com IPOS in 1999 and 2000, the Journal said.
The probes have put Wall Street firms on notice that the way they distribute IPOs could change. 
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