- The Washington Times - Wednesday, October 1, 2003


Brokerage J.P. Morgan has agreed to pay $25 million to settle federal regulators’ charges that it improperly used distributions of hot new stocks to certain customers to get them to buy additional shares.

J.P. Morgan neither admitted to nor denied the charges made in a civil lawsuit by the Securities and Exchange Commission. The big Wall Street firm also agreed to refrain from further violations in the settlement, which is subject to approval by a federal court in Washington.

The violations of securities laws and brokerage industry rules reputedly occurred in 1999 and 2000, during the height of the tech-stock boom and the frenzy of initial public offerings of stock, known as IPOs.

The SEC and the disciplinary arm of the National Association of Securities Dealers, the brokerage industry’s self-policing group, have been investigating Wall Street’s dealings in IPOs for nearly two years.

J.P. Morgan induced some institutional customers that received IPO stock from the firm to purchase additional shares during the new issue’s first few public trading days, the SEC said.

The rules against such conduct are designed to prevent the artificial pumping up of stock prices through purchases that are induced.

“This case is yet another example of the [SECs] resolve to vigorously enforce those rules designed to ensure that the IPO allocation process and IPO market are fair to all investors,” SEC enforcement director Stephen Cutler said.

He said the case stands as a warning to all firms like J.P. Morgan that finance issues of stock that “they cannot engage in conduct that could distort the market for IPO stocks.”

The SEC suit did not name any individuals at J.P. Morgan.

It was the second major enforcement action against the firm involving IPOs. In February, J.P. Morgan agreed to pay $6 million to settle charges that its Hambrecht & Quist investment bank got inflated commissions from customers who improperly received IPOs. The firm, which also was censured, neither admitted to nor denied the charges by the National Association of Securities Dealers.

The violations by Hambrecht & Quist reputedly occurred from November 1999 to March 2000, before J.P. Morgan acquired the San Francisco-based firm.

In a similar case in January, FleetBoston Financial Corp. agreed to pay $28 million to settle the NASD’s charges that its Robertson Stephens investment bank got inflated commissions in exchange for improperly distributing IPOs to customers.

And last year, Wall Street firm Credit Suisse First Boston agreed to pay $100 million to resolve regulators’ charges of abuses in its distribution of IPOs.

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