U.S. Securities & Exchange Commission
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U.S. Securities and Exchange Commission


450 Fifth St., N.W.
Washington, D.C. 20549
Robertson Stephens, Inc.,

No.    CV    (     )


Plaintiff Securities and Exchange Commission ("Commission") alleges the following against Robertson Stephens, Inc. ("Robertson Stephens"):


  1. In 1999 and 2000, Robertson Stephens wrongfully obtained millions of dollars from over 100 customers by allocating shares of Initial Public Offerings ("IPO") to these customers and receiving, in return, profits -- in the form of excessive commissions or markdowns -- made by these customers on their IPO stock.
  2. The customers involved in the conduct alleged in this Complaint were certain "hedge funds," other small institutional accounts and large retail customers ("Accounts"). Robertson Stephens provided allocations of stock in "hot" IPOs to institutional customers in large part based upon a ranking system that measured the amount of commission dollars paid to Robertson Stephens on secondary trades (trades made on the open market in non-IPO securities). Certain Robertson Stephens personnel took advantage of the high demand for IPO shares during this period and pressured institutional Accounts to increase their business in secondary trades to Robertson Stephens in order to raise their "rank" to get IPO allocations.
  3. In 1999 and 2000, Robertson Stephens allocated IPO shares to certain institutional Accounts who shared their IPO profits with Robertson Stephens by paying unusually large commissions on secondary trades in highly liquid, exchange-traded securities. In some instances, these institutional Accounts paid back commissions to Robertson Stephens that were over 4,000% higher than the commissions customarily paid by institutions. For example, instead of paying a typical commission of $.06 per share on secondary trades, these institutional Accounts paid Robertson Stephens commissions ranging up to $2.50 on trades (with a small number of trades over $2.50) -- which were typically executed the day before the IPO, the day of the IPO, or shortly thereafter. There was no economic purpose for these commission-generating secondary market purchases. Indeed, some of the Accounts engaged in offsetting trades, where they either purchased or sold securities through Robertson Stephens and at the same time executed the other side of the trade through another broker-dealer.
  4. Robertson Stephens also improperly shared in the profits of some of its large retail Accounts serviced by its Financial Services Department ("FSD"). Retail brokers were given IPO stock and total discretion in allocating IPO shares to their retail customers. Some FSD brokers then reminded their Accounts about the IPO profits and also asked them to engage in trades in return. The retail Accounts shared profits by paying unusually high commissions on other secondary trades or high markdowns when they sold their IPO shares back to Robertson Stephens.
  5. By sharing in its customers' profits in exchange for IPO allocations and failing to reflect this in its books and records, Robertson Stephens violated NASD Conduct Rules 2110 and 2330 and Section 17(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78q(a), and Rule 17a-3(a)(6) thereunder, 17 C.F.R. § 240.17a-3(a)(6).


  1. The Commission brings this action pursuant to authority conferred upon it by Sections 21(e) and 21(f) of the Exchange Act, 15 U.S.C. §§ 78u(e) and 78u(f), to enjoin Robertson Stephens from violating provisions of the federal securities laws and NASD Conduct Rules. In addition, the Commission seeks other relief, including, but not limited to, disgorgement and civil penalties.


  1. This Court has jurisdiction over this action, and venue is proper, pursuant to Sections 21(d) and 27 of the Exchange Act, 15 U.S.C. §§ 78u(d)(3).


  1. Robertson Stephens is a broker-dealer, pursuant to Section 15 of the Exchange Act, 15 U.S.C. § 78o, which has been registered with the Commission since May 29, 1996. Robertson Stephens also is currently a member of NASD. Robertson Stephens was incorporated in Massachusetts in 1996 and maintains its principal place of business in San Francisco, California. Prior to July 2002, Robertson Stephens provided a range of services, including securities underwriting, sales and trading and investment banking. Unrelated to this proceeding, Robertson Stephens has filed a Form BDW (Broker Dealer Withdrawal Form) and is in the process of withdrawing its registration as a broker-dealer.

The IPO Process at Robertson Stephens

  1. An IPO is the first public issuance of stock from a company that has not previously been publicly traded. A "hot" IPO is one in which the stock immediately trades at a premium in the aftermarket.
  2. During the period 1999 through 2000, Robertson Stephens underwrote over 75 IPOs.
  3. There were three major departments within Robertson Stephens that were involved in the allocation of IPOs: the Capital Markets Department, the Institutional Sales Department ("ISD") and the Financial Services Department ("FSD"). Capital Markets administered the IPO process, organized the roadshows and did other marketing of the transactions. When serving as the lead underwriter for the IPO, Capital Markets determined (along with the company going public) the pricing of the IPO stock. The Syndicate Department ("Syndicate"), which was part of Capital Markets, allocated shares to its institutional accounts, to the FSD (which then allocated IPO shares to retail accounts), and to other underwriters who were co-managers of the deal.
  4. The ISD consisted of research salespeople, sales traders and sales assistants. Research salespeople provided institutional customers with investment advice and recommendations. The research salespeople also informed their institutional accounts about upcoming IPOs, at times arranged for customers to attend roadshows, provided customers with syndicate ranking information for IPOs and received a customer's indication of interest in an IPO. Research salespeople and sales traders relayed information to Syndicate regarding their accounts' indications of interest in a particular IPO. Syndicate was responsible for deciding the size of the allocation that institutional clients would receive in the IPOs.
  5. The ISD's sales traders received customer orders for secondary trades and provided trade execution services to institutional accounts.
  6. Robertson Stephens allocated the majority of its IPO shares to institutional customers on the basis of a ranking system. Syndicate ranked institutional customers based upon a weighted calculation of the customer's total commission dollars over an 18-month period, with more weight given to the most recent three months. Syndicate decided the size of IPO allocations based largely on the customer's rank. Robertson Stephens also had discretion to allocate some IPO shares independent of rank. On a number of occasions, the Accounts received more shares than they otherwise would have received based solely on their rank.
  7. Robertson Stephens generally set a threshold syndicate rank before institutional accounts were eligible to begin receiving IPO shares. The minimum threshold for eligibility in 1999 was commissions of $100,000. In January 2000, as trading volumes increased throughout the industry, Robertson Stephens increased the minimum to commissions of $200,000.
  8. On the retail side, Syndicate would set aside a certain percentage of a deal (between 1% and 10%) for FSD, which then had total discretion in allocation decisions. FSD serviced individuals with assets typically in the tens of millions of dollars. The head of FSD then gave individual brokers stock to allocate among their retail customers.
  9. Supervisors in institutional sales and FSD received daily purchase and sales reports that detailed each trade and the commission and markup or markdown paid by the client on each transaction. The compensation of the FSD and the institutional sales force was based in large part on the revenue generated by their client accounts, including brokerage commissions in the case of Research Sales personnel, and markups and markdowns on principal trades in the case of FSD brokers.

Robertson Stephens's Shared the IPO Profits of Certain Customers By Obtaining Millions of Dollars in Commission Business From Them

  1. In 1999 and 2000, there was unprecedented growth in the new issue market and in the demand for IPO shares. Many investors in IPOs hoped to capitalize on an immediate price increase above the IPO price by flipping the IPO shares (i.e., selling the shares in the first days or weeks of trading). Robertson Stephens was legally restricted from allocating to itself shares in lucrative IPOs that it underwrote; this restriction prevented the firm from obtaining huge flipping profits enjoyed by the recipients of its IPO allocations.


  1. Robertson Stephens' wrongful conduct involved institutional Accounts which did not generate enough ordinary commission business with Robertson Stephens to warrant the IPO allocations they wanted or received, as well as certain retail Accounts.
  2. Certain secondary trading undertaken by the Accounts consisted of trades at Robertson Stephens and offsetting trades at other broker-dealers in exchange-listed, low-volatility and highly liquid securities. The purpose of this trading activity was to generate commissions to maintain or increase rank and thereby give back IPO profits to Robertson Stephens.
  3. The Accounts frequently executed one side of the trade with Robertson Stephens with an unusually large commission and then virtually simultaneously executed the offsetting side of the trade through another broker-dealer, typically at a normal commission rate of around $.06. Although the purchase and sale often were executed at a similar price, payment of the significant commission to Robertson Stephens resulted in a net loss to the account. In an effort to minimize any market risks associated with a change in price, the profit sharing accounts often executed offsetting trades at the opening of trading.
  4. In at least one instance, an employee of Robertson Stephens knew that the Accounts were engaging in such offsetting trades. The Robertson Stephens research salesperson suggested to his Account a highly liquid security that would be good for an offsetting trade.

Robertson Stephens' Personnel Pressured Certain Customers To Increase for IPO Shares

  1. In 1999 and 2000, Robertson Stephens ranking system was used to pressure the institutional Accounts to increase their commission business and "ramp" up their rank in order to receive allocations. Some Robertson Stephens personnel pressured their institutional Accounts for this business irrespective of the economics of the trades for the Accounts.
  2. As new rankings came out monthly, some employees told their institutional Accounts: what their rank was as compared to other customers; that they needed to keep their rank up or they would not obtain any IPO allocations; and that it was important for them to generate commissions in order to maintain or increase their allocation amount.
  3. One Robertson Stephens representative told an institutional Account that he was "treading water" in relation to other customers, which the Account took to mean that he had not given back a sufficient amount in business. As a result of this pressure, the institutional Accounts often would use a portion of the money they made or anticipated making on IPO shares to place unusually large commissions on non-economic secondary trades in order to maintain or increase their rank. When the institutional Accounts paid these increased commissions, in some instances they were told that such additional commissions were "really helping," "getting you up there," and "working us up the ladder."
  4. Some Robertson Stephens employees explicitly urged their Accounts to increase their commission business or the markdowns after they received IPO shares. For instance, one institutional Account who made a significant profit on an IPO was told to "show his appreciation" in the form of increased future business.
  5. Another institutional Account received an IPO allocation of Critical Path ("CPTH") with the potential of making about $300,000 in profits by flipping the shares on the first day of trading. A sales trader notified the Account's research salesperson in e-mail that the Account was "going to throw us some listed trades for the CPTH allocation." The research salesperson responded in e-mail that he had talked to the Account about "giving us some listed trades. Can you please make sure my RR# is on them. That is 300K in Profits for them."
  6. One Account's retail broker called him a number of times when he made money on IPOs and said that he made money for him and "we expect big trades in return," "where is our trade," and "try to do a lot of trades since we made money for you." This Account typically engaged in offsetting trades (for example, buying through Robertson Stephens and then selling through another broker-dealer firm) when the market opened in order to generate commissions for Robertson Stephens.

Certain Customers Paid Unusually Large Commissions

  1. The institutional Accounts increased their rank and shared profits through the payment of unusually large commissions on their secondary trades with Robertson Stephens. Most institutional customers usually paid commissions of $.06 per share at Robertson Stephens. The institutional Accounts placed commissions ranging up to $2.50 on secondary trades done the day before, the day of, or the day after an IPO. For example, according to one institutional Account, a salesman advised the institutional Account that by increasing its commission rate per share, it could elevate its syndicate rank at a faster pace.
  2. Robertson Stephens did not provide services to the Accounts that would justify the payment of the high commissions on these liquid, exchange-listed stock transactions and the trades themselves were not of a size or difficulty to warrant extraordinary commissions.
  3. Instead, Accounts paid high commissions based on how much money they made on a particular "hot" IPO. On hot IPO days, many Accounts would place their orders for trades on the market's opening, but would not place commissions on the trade until later in the day after the account determined how much money they made or would make by flipping the IPO.
  4. Because of the pressure they faced to increase their rank in order to obtain or increase their IPO allocations, certain institutional Accounts determined a percentage of profits to repay the firm in order to maintain their rank and obtain IPO shares. Certain institutional Accounts repaid the firm about 25% to 30% of their profits on successful IPO deals.
  5. Trading records confirm that on days surrounding certain lucrative IPOs, the institutional Accounts directed a portion of their IPO profits to Robertson Stephens by paying artificially large commissions -- in amount, far in excess of the $.06 per share industry standard -- on transactions on highly liquid stock purchases.
  6. For example, in December 1999, Robertson Stephens served as the lead underwriter of the IPO OnDisplay. OnDisplay opened on December 17, 1999 at $28.00 and closed at a price of $77.00. Four of the institutional Accounts received IPO allocations with the potential to make over $2 million in profits if the shares were flipped on the first day. On that date, Robertson Stephens received payment of almost $1.3 million in commissions from those Accounts, including one account that paid $1.60 per share commission on the sale of 240,000 shares of Micron Technology Inc. for a total commission of $384,000. Another one of the four Accounts paid a total of $299,250 in commissions, engaging in the following transactions:

    Date Commission
    Per Share
    Security Number
    of Shares
    12/17/1999    $.65 General Motors 60,000
    12/17/1999    $.65 Eastman Kodak Co 70,000
    12/17/1999    $.65 Pfizer Increorg 75,000
    12/17/1999    $.65 Bank of America 80,000
    12/17/1999    $.65 Time Warner 60,000
    12/17/1999    $.75 Ford Motor Co 50,000
    12/17/1999    $.75 Micron Technology 50,000

  7. Robertson Stephens also served as the lead underwriter for the Firepond IPO, which opened on February 4, 2000 at a price of $22 and closed at $100.25. Seven of the institutional Accounts received IPO allocations with potential profits of over $6.5 million if the shares were flipped on the first day. Robertson Stephens received payment of approximately $2 million in commissions from these seven Accounts over the period February 3-4, 2000. One of the seven Accounts paid Robertson Stephens at least $521,500 on the day of the Firepond IPO by engaging in the following transactions:

    Date Commission
    Per Share
    Security Number
    of Shares
    02/04/2000   $.75 AOL 240,000
    02/04/2000   $.95 Micron Technology 170,000
    02/04/2000   $1.20 General Electric 150,000

    Similarly, another of the seven Accounts paid Robertson Stephens at least $225,000 on the day before, and day of, the Firepond IPO by engaging in two transactions:

    Date Commission
    Per Share
    Security Number
    of Shares
    02/03/2000   $1.00 Citigroup 100,000
    02/04/2000   $1.25 American Express 100,000

  8. A third Account paid Robertson Stephens at least $332,000 on the day before, and the day of, the Firepond IPO, engaging in the following transactions:

    Date Commission
    Per Share
    Security Number
    of Shares
    02/03/2000   $.40 Intl Business Machines 80,000
    02/03/2000   $.40 EMC Corp Mass 50,000
    02/03/2000   $.40 Time Warner 75,000
    02/04/2000   $1.00 Nokia Corp 75,000
    02/04/2000   $1.00 AT&T 75,000
    02/04/2000   $1.00 Coca-Cola 50,000
    02/04/2000   $1.00 Bristol Myers Squibb 50,000

  9. During the two-month period of December 1, 1999 to February 6, 2000, in which there were 11 Robertson Stephens lead-managed IPOs, including OnDisplay and Firepond, approximately 100 institutional Accounts that received IPO allocations paid excessive commissions on secondary transactions involving 10,000 or more shares of stock.
  10. Certain of these institutional Accounts engaged in virtually no trading through Robertson Stephens other than trades with inflated commissions paid around the time of an IPO when they received an allocation. Other of these accounts generally paid Robertson Stephens normal commission of $0.06 per share, and then inflated the commission rate around the time of an IPO. For example, during December 1999, an institutional Account received allocations in 6 hot IPOs and paid over $240,000 in inflated commissions on the day of and the day after the IPOs. This Account generated no other brokerage commissions throughout the month other than these inflated commissions. During December 1999, another institutional Account received allocations in 5 hot IPOs and paid $140,000 in inflated commissions at $.75 to $1.00 per share on each day the IPOs went effective. This Account generated only $7,800 in brokerage commissions at the standard rate of $.06 per share, throughout the remainder of the month.
  11. Certain of the retail Accounts serviced by FSD shared their profits with Robertson Stephens by paying high markdowns when they sold their over-the-counter IPO shares back to Robertson Stephens. Robertson Stephens often did not charge FSD customers any markdowns on principal transactions. During the relevant period, certain retail Accounts shared their profits from certain IPOs with Robertson Stephens by paying up to $5.00 per share in markdowns on the sale of IPO shares back to Robertson Stephens. These sales of IPO shares were generally executed or sold back to Robertson Stephens on the day the IPO commenced trading or the day after.
  12. One retail Account purchased 2,600 IPO shares of OnDisplay at $28 per share and sold the shares the same day at $79.88. The Account shared part of his profits (which exceeded $134,000) by paying a markdown of $2.50 per share on the sale of the stock.
  13. Another retail Account bought 1,000 IPO shares of Delano Technology at $18.00 per share and sold the shares the same day for $53.50. The client shared part of his profits of over $35,000 by paying a markdown of $2.50 per share. Overall, FSD obtained millions of dollars of unlawful profits from retail Accounts in this manner.
  14. The payments described in paragraphs 35 through 44 are representative examples of Robertson Stephens' practices during the relevant period.

Certain Robertson Stephens Management and Syndicate Personnel Were Informed That Robertson Stephens Was Sharing in IPO Profits

  1. Certain Robertson Stephens management was informed that the firm was sharing in profits made by certain Accounts in hot IPOs. For instance, in connection with one hot IPO, Critical Path, a research salesperson wrote in an e-mail to the head of the Institutional Sales Department that a certain Account had indicated its desire for 150,000 shares of that IPO and noted that: "[b]ecause of their [the account's] uncertainty about the level of upside to the deal, rather than commit to a fixed level of incremental commission (i.e. $10,000 per 1,000 shares), they have committed to do incremental business equal to 30% of their profit, i.e. 5,000 shares up $20 = $100,000 x 30% = $30,000 of incremental business over the following week depending on market conditions."
  2. In the same e-mail, this research salesperson told the head of the Institutional Sales Department that another Account is "a 1 man shop and can pay us whatever he wants…I will secure his commitment for a business level and incremental business for CPTH and email you tomorrow morning." The next day he sent an e-mail informing the head of Institutional Sales that the account "committed to do $10,000 in incremental business for every 1,000 shares of CPTH he gets."
  3. Further, e-mails between a vice president of the Institutional Sales Department and another employee in that department note that particular Accounts are willing to pay a certain amount for shares in a hot IPO.
  4. The Syndicate Department also was informed that certain accounts that received IPO shares would pay Robertson Stephens by executing additional secondary trades. With respect to the Critical Path IPO, the research salesperson told Syndicate in an e-mail that "if we treat [a customer] like a $million account on CPTH, they will do an incremental $50k in business on top of the normal $50k/month rate."
  5. A sales trader notified a managing director in Syndicate and a vice president in Syndicate in an e-mail that an Account "repaid the firm on two tickets $250,000 in Commission dollars for his allocation in ibasis and netegrity" and that another Account "paid us $212,000 on three tickets for their allocation on nete and Ibasis."
  6. In e-mail, a vice president of the Institutional Sales Department informed a managing director and a vice president of Syndicate with respect to an Account, "I'm hoping to bump his allocations up on Navisite and MCK beyond his rank. It's actually deserved in my opinion, since he has done 97k of biz already this month." This same vice president asks to reallocate shares to other Accounts based upon the amount of business they did: "30K of bus in 3 weeks."
  7. A vice president of Syndicate also conveyed to an Account that increased business means increased allocations by sending the following e-mail: "2,000 shares on Centra. Considering the business you have been doing, I am going to try and do better for you on Firepond."
  8. Robertson Stephens' management was aware of a potential profit sharing problem caused by the payment of large commissions by certain accounts. A Robertson Stephens 2000 Annual Report on Supervision and Compliance notes that "[a] small number of customers, primarily hedge funds, attempt to charge themselves excessive commissions in exchange for larger syndicate allocations."
  9. In addition, Robertson Stephens recognized that justification was required for the high commissions. For example, in an e-mail regarding a $6.30 per share charge on an FSD customer's purchases of GE stock, a principal with FSD Administrative Operations asked how this commission is justified. He continued to state, "[c]ommission charges, while negotiable, need to be justifiable and consistent. Part of that consideration is the actual cost involved in transacting, a premium to account for any Firm capital that was at risk, the amount of work involved to execute (i.e. working the order for best execution); and a premium for the account managers advice." As Robertson Stephens knew, no such justification existed for secondary trades done by the Accounts.
  10. On July 29, 1999, the firm sought advice in an e-mail from a compliance organization on "policies and procedures used to prevent the appearance of "profit sharing" as related to higher than normal commissions charged upon the liquidation of profitable stock purchased in an IPO."
  11. Finally, two senior managers discussed creating spreadsheets detailing certain customers' IPO profits and, on one occasion, a Robertson Stephens employee, created a spreadsheet that showed a particular customer's hypothetical first day profits if certain IPO stocks were flipped.


  1. Paragraphs 1 through 53 are realleged and incorporated herein by reference.
  2. NASD Conduct Rule 2110 requires members to observe high standards of commercial honor and just and equitable principles of trade.
  3. Robertson Stephens violated Rule 2110 by engaging in the conduct described in paragraphs 1 through 53 above.


  1. Paragraphs 1 through 53 are realleged and incorporated herein by reference.
  2. NASD Conduct Rule 2330(f) prohibits a member or any person associated with a member from sharing directly or indirectly in the profits or losses of a customer, unless certain conditions are met.
  3. As described in paragraphs 1 through 53, in 1999 and 2000, Robertson Stephens shared directly or indirectly in the profits in accounts of customers carried by Robertson Stephens in violation of Rule 2330(f).


  1. Paragraphs 1 through 53 are alleged and incorporated herein by reference.
  2. As alleged above, commencing in or about 1999, Robertson Stephens, while it was, among other things, a broker-dealer transacting a business in securities through the medium of members of national securities exchanges and a broker and dealer registered with the Commission pursuant to Section 15 of the Exchange Act, 15 U.S.C. § 78o, failed, as required by Section 17(a)(1) of the Exchange Act, 15 U.S.C. § 78q(a), to accurately make and keep for prescribed periods such records, furnish such copies thereof and make, disseminate and file such reports as the Commission by rule, has prescribed as necessary and appropriate in the public interest and for the protection of investors.
  3. Exchange Act Rule 17a-3(a)(6), 17 C.F.R § 240.17a-3(a)(6), requires a broker-dealer to maintain a record of each order received for the purchase and sale of a security that includes the terms and conditions and the account for which entered.
  4. As described above, Robertson Stephens failed to reflect accurately in its books and records that Robertson Stephens shared in its customers' profits in exchange for IPO allocations.
  5. By reason of the foregoing, Robertson Stephens directly and indirectly violated Section 17(a) of the Exchange Act, 15 U.S.C. § 78q(a), and Rule 17a-3(a)(6) thereunder, 17 C.F.R. § 240.17a-3(a)(6).


WHEREFORE, the Commission respectfully requests that this Court:


Enter an Order permanently restraining and enjoining Robertson Stephens, directly or indirectly, from violating NASD Conduct Rules 2110 and 2330 and Section 17(a) of the Exchange Act, 15 U.S.C. § 78q, and Rule 17a-3(a)(6), 17 C.F.R § 240.17a-3(a)(6), thereunder;


Enter an Order directing Robertson Stephens to disgorge the ill-gotten gains obtained from its conduct;


Enter an Order requiring Robertson Stephens to pay a civil penalty pursuant to Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d);


Enter an Order granting such other and further relief as the Court may deem just and proper;


Enter an Order retaining jurisdiction of this action in order to implement and carry out the terms of any Orders, which may be entered herein.

  Respectfully submitted, ________________________
Antonia Chion, Esq. (Bar No. 358014)
Robert Kaplan, Esq.
Christopher Conte, Esq. (Bar No. 419774)
Lisa Deitch, Esq.
Nancy Markowitz, Esq. (Bar No. 380541)
Attorneys for Plaintiff
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington D.C. 20549-0707
Telephone: (202) 942-2803 (Kaplan)
Facsimile: (202) 942-9569



Modified: 01/09/2003