SEC Charges CSFB with Abusive IPO Allocation Practices CSFB Will Pay $100 Million to Settle SEC and NASD Actions; Millions in IPO Profits Extracted from Customers in Exchange for Allocations in "Hot" Deals
FOR IMMEDIATE RELEASE
Washington, D.C., January 22, 2002 The Securities and Exchange Commission today filed charges against Credit Suisse First Boston Corporation (CSFB), the New York-based broker-dealer and investment bank, for abusive practices relating to the allocation of stock in "hot" initial public offerings (IPOs).
The Commission simultaneously announced that CSFB agreed to pay a total of $100 million to resolve the Commission's charges and a related action by NASD Regulation, Inc. (NASDR). CSFB also agreed to be enjoined from future violations and to institute wide-ranging new procedures designed to prevent a recurrence of the sort of misconduct that gave rise to this action.
"In today's enforcement action the Commission has obtained one of the largest civil penalties ever imposed against a broker-dealer," said Stephen M. Cutler, Director of the SEC's Division of Enforcement. "CSFB improperly took advantage of its position as underwriter by allocating shares of hot IPOs to customers who agreed to share their IPO profits by paying excessive commissions," he added.
In a complaint filed in U.S. District Court for the District of Columbia, the Commission charged CSFB with violating certain conduct rules of the National Association of Securities Dealers, Inc. (NASD) which prohibit profit-sharing in customer accounts and unjust or inequitable conduct. The Commission also charged that CSFB violated the SEC's books-and-records requirements for broker-dealers.
"The Commission has taken the unusual step of seeking a federal court injunction to enforce NASD rules in view of the nature and scale of the misconduct alleged in the complaint," said Wayne M. Carlin, director of the Commission's Northeast Regional Office. "In contravention of the applicable rules, CSFB wrongfully obtained for itself tens of millions of dollars of its customers' IPO profits."
The complaint, which will be available on the SEC's website, includes the following allegations:
"In the midst of the hot IPO market between April 1999 and June 2000, CSFB extracted a significant sum of money from a relatively small segment of the marketplace," Carlin said. "CSFB saw that some people were willing to do just about anything to get IPO stock, and CSFB improperly took advantage of the circumstances to take for itself a share of its own customers' profits."
CSFB has agreed to settle this matter, without admitting or denying the allegations in the complaint. The settlement terms are subject to approval by the court.
CSFB has agreed to pay a total of $100 million to settle the Commission's action and a related action announced today by NASDR. Specifically, CSFB will pay disgorgement totaling $70 million. In addition, CSFB will pay civil penalties and fines totaling $30 million.
CSFB has consented to be enjoined from violations of NASD Conduct Rules 2110 (prohibiting violation of just and equitable principles of trade) and 2330 (prohibiting sharing in the profits of customer accounts), as well as Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-3 thereunder (broker-dealer books and records).
Finally, CSFB has undertaken to change its methods of allocating IPO stock, as well as its supervision of those activities. Among other things, CSFB will (1) implement extensive new policies and procedures relating to the allocation of IPO shares, the customer account opening process, commission levels, and related supervisory practices; (2) retain an independent consultant to conduct a review of CSFB's new policies and procedures after one year; and (3) adopt the recommendations of the independent consultant.
"This matter was a model of effective cooperation and parallel investigation by our staff and the staff of NASDR," Cutler said. "We are most grateful for NASDR's extraordinary work on the enforcement actions announced today."
The Commission also acknowledged the invaluable assistance provided by the Office of the United States Attorney for the Southern District of New York in the investigation of this matter.
Persons to contact:
Stephen M. Cutler 202-942-4500
Wayne M. Carlin 202-942-4500, 646-428-1510