Wednesday, January 26, 2005

Goldman Sachs and Morgan Stanley Settle SEC Complaints About IPO Allocations

The SEC announced that it filed and settled complaints against Goldman Sachs and Morgan Stanley relating to the allocation of shares in Initial Public Offerings (IPO) to clients of the firms by requiring those receiving shares to place orders to purchase additional shares, thereby raising the price of the stock. Each firm agreed to pay a civil penalty of $40 million.  The Litigation Release regarding Morgan Stanley states:

In its complaint, the Commission alleges that Morgan Stanley violated Rule 101 of Regulation M under the Securities Exchange Act of 1934 by attempting to induce certain customers who received allocations of IPOs to place purchase orders for additional shares in the aftermarket. The complaint further alleges that Morgan Stanley did induce certain customers to place such orders during the new issues' first few trading days.

The allegations against Goldman Sachs are substantially similar (Litigation Release here). The Commission action does not involve a fraud allegation, and with the cooling of the IPO market there is much less demand for the shares of newly-public companies. (ph)

Civil Enforcement, Securities | Permalink

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